June 2016
IMF Country Report No. 16/181
JAMAICA
2016 ARTICLE IV CONSULTATION, ELEVENTH AND
TWELFTH REVIEWS UNDER THE EXTENDED FUND
FACILITY AND REQUEST FOR MODIFICATION OF
PERFORMANCE CRITERIA—PRESS RELEASE; STAFF
REPORT; AND STATEMENT BY THE EXECUTIVE
DIRECTOR FOR JAMAICA
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions
with members, usually every year. In the context of the 2016 Article IV consultation and
Eleventh and Twelfth Review Under the Extended Fund Facility and Request for
Modification of Performance Criteria with Jamaica, the following documents have been
released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its
June 17, 2016 consideration of the staff report that concluded the Article IV
consultation with Jamaica.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s
consideration on June 17, 2016, following discussions that ended on May 20, 2016,
with the officials of Jamaica on economic developments and policies. Based on
information available at the time of these discussions, the staff report was completed
on June 3, 2016.
An Informational Annex prepared by the IMF staff.
A Statement by the Executive Director for Jamaica.
The documents listed below have been or will be separately released:
Letter of Intent sent to the IMF by the authorities of Jamaica*
Memorandum of Economic and Financial Policies by the authorities of Jamaica*
Technical Memorandum of Understanding*
*Also included in Staff Report
The IMF’s transparency policy allows for the deletion of market-sensitive information and
premature disclosure of the authorities’ policy intentions in published staff reports and
other documents.
© 2016 International Monetary Fund
Copies of this report are available to the public from
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Telephone: (202) 623-7430 Fax: (202) 623-7201
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Price: $18.00 per printed copy
International Monetary Fund
Washington, D.C.
Press Release No. 16/292
FOR IMMEDIATE RELEASE
June 17, 2016
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
IMF Executive Board Completes Combined Eleventh and Twelfth Reviews under the
Extended Fund Facility for Jamaica and Approves US$80 Million Disbursement
On June 17, 2016, the Executive Board of the International Monetary Fund (IMF) completed the
combined eleventh and twelfth reviews under the Extended Arrangement under the Extended
Fund Facility (EFF) for Jamaica. The completion of the reviews enables the disbursement of an
amount equivalent to SDR 56.64 million (about US$80 million) bringing the total disbursements
under the arrangement to the equivalent of SDR 530.42 million (about US$748.2 million).
The Executive Board approved the EFF arrangement for four years and a total equivalent to SDR
615.38 million (about US$948.1 million), the equivalent of 225 percent of Jamaica’s quota in the
IMF at the time of approval of the arrangement (see Press Release No. 13/150) on May 1, 2013.
Since May 2013, Jamaica’s implementation of the economic reform program supported by the
EFF has been exceptional by international standards. After three years of difficult economic
reforms, inflation is at historical lows, the current account deficit has more than halved, net
international reserves have doubled, and access to domestic and international financial markets
has been restored, supported by upgrades in credit ratings and historically high business
confidence indicators. Comprehensive reforms in tax policy and administration have been and
continue to be undertaken, while strict adherence to fiscal discipline together with a PetroCaribe
debt buyback have helped place debt on a downward trajectory. Financial sector resilience has
been strengthened and supply-side growth constraints have been eased. Elections in February
2016 resulted in a change in government. The new government remains committed to continuing
reforms under the program, with a focus on maintaining fiscal discipline while achieving
equitable growth through increased capital spending and the strengthening of the social safety
net.
Following the Executive Board's discussion today, Mr. Mitsuhiro Furusawa Deputy Managing
Director and Acting Chair issued the following statement:
“Jamaica’s economic reform program supported by the Fund’s Extended Fund Facility has made
major strides in restoring macroeconomic stability, pursuing fiscal consolidation, reducing public
debt and undertaking significant tax policy reforms, building financial sector resilience, and
2
tackling structural issues. Business confidence is at an all time high, while inflation and the
current account deficit have been significantly reduced. The domestic bond market has reopened
after the 2013 debt exchange, and private credit growth is recovering.
“The new administration is committed to continued fiscal discipline. The phased personal
income tax reform launched with the FY2016/17 budget is a bold step to shift the tax system
from direct to indirect taxation. Proper execution of this reform is critical to ensure revenue
neutrality and safeguard the revenue base. Strengthening and better targeting conditional cash
transfers will help mitigate the impact of the reform on the low-income population.
“Concrete reforms are needed to sustainably reduce the government wage bill, which continues
to crowd out priority social and infrastructure spending. Actions should be expedited to divest
and outsource certain government services and implement the human resource management
system.
“Jamaica’s growth remains weak and unemployment, while declining, is still high. Further
structural reforms to boost growth and employment should focus on facilitating private sector
development by expanding financial access and reducing financing cost, lowering energy cost,
maintaining external competitiveness, reducing tax compliance costs, and improving public
sector resource allocation.”
Press Release No. 16/300
FOR IMMEDIATE RELEASE
June 21, 2016
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
IMF Executive Board Concludes 2016 Article IV Consultation with Jamaica
On June 17, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the
Article IV consultation1 with Jamaica.
Since May 2013, Jamaica’s implementation of the economic reform program supported by the
EFF has been exceptional by international standards. After three years of difficult economic
reforms, inflation is at historical lows, the current account deficit has more than halved, net
international reserves have doubled, and access to domestic and international financial markets
has been restored, supported by upgrades in credit ratings and historically high business
confidence indicators. Comprehensive reforms in tax policy and administration have been and
continue to be undertaken, while strict adherence to fiscal discipline together with a PetroCaribe
debt buyback have helped place debt on a downward trajectory. Financial sector resilience has
been strengthened and supply-side growth constraints have been eased. Elections in February
2016 resulted in a change in government. The new government remains committed to continuing
reforms under the program, with a focus on maintaining fiscal discipline while achieving
equitable growth through increased capital spending and the strengthening of the social safety
net.
Executive Board Assessment2
Executive Directors commended the authorities’ strong implementation of their Fund-supported
program since its inception. Macroeconomic stability has been restored, marked by historic low
1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually
every year. A staff team visits the country, collects economic and financial information, and discusses with officials
the country's economic developments and policies. On return to headquarters, the staff prepares a report, which
forms the basis for discussion by the Executive Board.
2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of
Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers
used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.
2
inflation, halving of the current account deficit, reduction of public debt, and regained access to
international and domestic bond markets. Nonetheless, growth and employment have remained
weak, and Directors underscored the need to accelerate efforts to address deep-rooted structural
impediments to strong private-sector led growth. In this regard, they welcomed the new
administration’s commitment to the reform objectives.
Directors commended the authorities’ significant fiscal reforms and their commitment to
continued fiscal discipline. They welcomed their bold effort to reorient the tax system from
direct to indirect taxation, and emphasized the importance of implementing measures to offset
the revenue losses from the personal income tax reform, and protecting the poor from the impact
of the higher indirect taxes. Directors also highlighted the need to improve public resource
allocation in favor of priority social and infrastructure spending. They considered reducing the
wage bill and enhancing public employment efficiency to be priorities. They also encouraged the
authorities to continue to take steps to improve revenue administration and compliance, broaden
the tax base, undertake pension reforms, and enhance public financial and debt management.
Directors noted that the monetary stance is broadly appropriate, and encouraged the central bank
to continue to focus on price stability. They stressed the need to strengthen central bank
autonomy and improve monetary transmission. In this context, the authorities should continue to
refine monetary operations and reduce the high spread in banks’ interest rates by increasing
banking sector competition and reforming financial sector taxation. Directors also emphasized
the importance of continued exchange rate flexibility.
Directors welcomed the progress in enhancing financial sector resilience. They concurred that
the financial sector should be strengthened through further retail repo reforms and enhanced
financial sector supervision and crisis management, including establishing a legal framework for
the resolution of banks and securities dealers. Directors also highlighted the importance of
promoting further development of the domestic debt market. They welcomed the Fund’s
commitment to better understand and address the issues related to the loss of correspondent
banking relationships, and urged the authorities to work with the Fund and other partners in this
area, in tandem with efforts to strengthen the AML/CFT framework.
Directors stressed that continued structural reforms are needed to boost growth and employment.
They highlighted, in particular, the need to reduce energy costs, increase access to finance,
enhance public sector efficiency, expedite labor market reforms, and continue to improve the
overall business environment to attract private investment. Proper communication will be
important to secure continued support by the population for the reform efforts.
3
Jamaica: Selected Economic Indicators
2012/13
2013/14
2014/15
2015/16
-0.8
1.0
0.2
16.3
9.1
7.2
25.8
29.9
-4.1
5.4
0.1
-3.9
145.3
13.3
18.2
9.1
6.6
-9.9
2.1
11.4
67.4
4.3
13.6
8.3
9.4
27.1
27.0
0.1
7.6
0.0
0.1
139.7
6.1
11.0
9.1
7.9
-8.1
3.9
14.5
66.7
-2.0
13.2
4.0
7.2
26.3
26.8
-0.5
7.5
0.9
0.4
135.6
5.7
4.0
7.0
7.8
-7.1
4.3
19.3
65.5
10.5
0.8
13.3
3.0
3.4
28.0
28.3
-0.3
7.4
1.9
1.6
128.7
18.7
9.6
5.9
5.9
-3.0
5.4
23.2
75.9
15.8
-2.4
Output
Real GDP growth (%)
Employment
Unemployment (%)
Prices
Inflation, end of period (%)
Inflation, average (%)
Central government finances 1/
Budgetary revenue (% of GDP)
Budgetary expenditure (% of GDP)
Budget balance (% of GDP)
Of which: central government
Primary balance
Public entities balance (% of GDP)
Public sector balance (% of GDP)
Public debt (% of GDP) 2/
Money and credit
Broad money (% change)
Credit to the private sector (%
change)
Treasury bill rate, end-of-period (%)
Treasury bill rate, average (%)
Balance of payments
Current account (% of GDP)
FDI, net (% of GDP)
Gross international reserves (weeks
of imports)
External debt (% of GDP)
Terms of trade (% change)
Exchange rate
End-of-period REER (appreciation
+) (INS)
Sources: Jamaican authorities; UNDP Human Development Report; Information Notice System; and Fund
staff estimates and projections.
1/ Fiscal years run from April 1 to March 31. Authorities' budgets presented according to IMF definitions.
-2.1
-4.7
7.3
2/ Central government direct and guaranteed only, including PetroCaribe debt (net of its financing to the central
government) and projected IMF disbursements and other IFIs.
June 3, 2016
JAMAICA
STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION,
ELEVENTH AND TWELFTH REVIEWS UNDER THE EXTENDED
FUND FACILITY AND REQUEST FOR MODIFICATION OF
PERFORMANCE CRITERIA
Context. Jamaica is implementing an economic reform program that has been
supported by the IMF’s Extended Fund Facility since May 2013. Significant strides have
been made in restoring macroeconomic stability, pursuing prudent fiscal policy,
reducing public debt and undertaking significant reforms in tax policy, financial sector
resilience, and structural issues. Meanwhile, in the February 25 general elections, the
Jamaica Labor Party (JLP) narrowly won, defeating the incumbent People’s National
Party (PNP). Prime Minister Holness has reiterated his government’s commitment to the
EFF-supported program, including continued fiscal consolidation, evidenced by the
primary surplus target of 7 percent of GDP in the budget for FY16/17.
Focus of the Article IV Consultation. The spotlight was on further reducing
macroeconomic vulnerabilities, fostering growth, creating the conditions for financial
deepening and inclusion, reallocating public resources to maximize economic returns,
and improving competitiveness. These reforms would need to be undertaken along
with continued debt reduction and fiscal consolidation.
Program Issues. All quantitative performance criteria and structural benchmarks for the
completion of the 11th and 12th reviews were met. The government’s intention is to
implement a phased reduction in the personal income tax burden, but to do so in a
revenue-neutral, equitable, and efficient way that achieves a rebalancing from direct to
indirect taxes. Efforts are also underway to reduce the public sector wage bill to redirect
spending toward growth-enhancing capital spending. Modified performance criteria
(PCs) for September 2016 and new PCs for December 2016 are proposed, reflecting the
downward growth revision, and new structural benchmarks were set for fiscal and
financial reforms.
JAMAICA
Approved By
Nigel Chalk (WHD)
and Peter Allum
(SPR)
Discussions took place in Kingston during May 9–20, 2016. Staff
representatives comprised U. Ramakrishnan (head), N. Che, J. Wong (all
WHD), X. Fang (FAD), R. Garcia Verdu (SPR), A. Guscina (MCM), and B. van
Selm (Resident Representative). They were assisted at headquarters by
H. Canelas, E. Moreno, and C. Li, and at the Resident Representative Office
by K. Jones and R. Henry. Mr. Lessard (OED) participated in the
discussions.
CONTENTS
POLITICAL CONTEXT ____________________________________________________________________________ 4
BACKGROUND: TOWARD STABILITY AND GROWTH __________________________________________ 4
RECENT DEVELOPMENTS, OUTLOOK, AND RISKS _____________________________________________ 8
A. Recent Developments __________________________________________________________________________ 8
B. Outlook and Risks _____________________________________________________________________________ 10
PROGRAM IMPLEMENTATION _______________________________________________________________ 11
POLICY DISCUSSIONS: PROMOTING STABILITY AND RAISING POTENTIAL GROWTH ____ 12
A. Safeguarding Macroeconomic Stability _______________________________________________________ 12
B. Raising Potential Growth and Creating Jobs ___________________________________________________ 16
PROGRAM POLICIES ___________________________________________________________________________ 21
A. 2016/17 Budget _______________________________________________________________________________ 21
B. Monetary, Exchange Rate and Financial Sector Policies _______________________________________ 23
C. Other Program Issues _________________________________________________________________________ 26
STATISTICS ____________________________________________________________________________________ 27
STAFF APPRAISAL _____________________________________________________________________________ 27
BOXES
1. Tax and Customs Administration in Jamaica: Reforms and Challenges _________________________ 7
2. Re-establishing Domestic Bond Market Access ________________________________________________ 14
3. Loss of Correspondent Bank Relationships and the Impact on Jamaica _______________________ 16
4. Monetary Stance and Monetary Transmission in Jamaica _____________________________________ 25
2
INTERNATIONAL MONETARY FUND
JAMAICA
FIGURES
1. Fiscal Developments ___________________________________________________________________________ 30
2. Financial Sector Developments ________________________________________________________________ 31
3. Public Debt ____________________________________________________________________________________ 32
TABLES
1. Selected Economic Indicators _________________________________________________________________ 33
2. Summary of Central Government Operations (In millions of Jamaican dollars) ________________ 34
3. Summary of Central Government Operations (In percent of GDP) _____________________________ 35
4. Operations of the Public Entities ______________________________________________________________ 36
5. Summary Balance of Payments ________________________________________________________________ 37
6. Summary Accounts of the Bank of Jamaica ____________________________________________________ 38
7. Summary Monetary Survey ____________________________________________________________________ 39
8. Financial Sector Indicators _____________________________________________________________________ 40
9. Structural Program Conditionality _____________________________________________________________ 41
10. Quantitative Performance Criteria ____________________________________________________________ 43
11. Indicators of Fund Credit, 2015-26 ___________________________________________________________ 44
12. Schedule of Reviews and Purchases __________________________________________________________ 45
ANNEXES
I. Risk Assessment Matrix ________________________________________________________________________ 46
II. Growth Drivers and Constraints _______________________________________________________________ 47
III. 2016 External Sector Assessment _____________________________________________________________ 61
IV. Debt Sustainability Analysis __________________________________________________________________ 65
APPENDIX
I. Letter of Intent _________________________________________________________________________________ 75
Attachment 1. Memorandum of Economic and Financial Policies ______________________________ 77
Attachment 2. Technical Memorandum of Understanding _____________________________________ 91
INTERNATIONAL MONETARY FUND
3
JAMAICA
POLITICAL CONTEXT
1. The Jamaica Labor Party (JLP) won the general election in February 2016, defeating
the incumbent People’s National Party by one parliamentary seat. The new government took
office in March with a mandate to boost growth and reduce the tax burden for the low and middle
income groups. Prime Minister Holness has stated the government’s intention is to continue with
the IMF-supported program to build on the macroeconomic stability achieved thus far, including by
maintaining the fiscal targets of the program while supporting inclusive growth.
BACKGROUND: TOWARD STABILITY AND GROWTH
2.
Jamaica’s economy has been afflicted for several decades by a combination of low
growth and rising public debt. Real growth has averaged 0.7 percent since 1990 and
unemployment has rarely dropped below 10 percent. Meanwhile, the public debt has been above
100 percent of GDP since 2000. Poor fiscal discipline propelled the debt increase, which crowded out
private sector credit, raised financing costs, and further depressed growth. Weak growth, in turn,
undermined fiscal performance and caused further increases in debt.
3. An IMF-supported program was approved in 2013 to avert a severe fiscal and balance
of payments crisis. The economy contracted by 0.2 percent in FY2012/13 in the wake of Hurricane
Sandy. The current account deficit deteriorated to 12 percent of GDP. Foreign reserves dropped
sharply to 1.4 months of imports, resulting from weak foreign inflows, including from the
multilateral institutions, central bank foreign exchange sales to sustain the exchange rate, and debt
payment. At the same time, fiscal performance fell short of budget targets and public debt rose to
nearly 150 percent of GDP. To prevent the looming crisis, the IMF’s Executive Board approved a
four-year EFF-supported program in May 2013 (SDR 615.38 million, 225 percent of quota at the time
of approval of the EFF, 161 percent of current quota).
4. The authorities’ economic reform program aimed to sustainably reduce debt and
boost growth. The goals of the reforms include boosting growth and employment, improving
external competitiveness, achieving fiscal and debt sustainability, strengthening the financial system,
and supporting the poor. To increase the credibility of the reform program against a history of
repeated reform failures, the authorities frontloaded important policy actions. These include a multi-
year public sector wage agreement, an upfront tax package, and a debt exchange to secure an
immediate reduction in the debt stock.
5. Significant progress has been achieved owing to strong program ownership and
implementation.
Sustained fiscal consolidation. For three years, the central government primary surplus was
maintained at 7½ percent of GDP, while public debt fell by 20 percentage points of GDP, aided
by the PetroCaribe debt buyback in 2015. The faster than anticipated decline in debt allowed for
4
INTERNATIONAL MONETARY FUND
JAMAICA
a reduction in the primary surplus target (to 7.25 and 7 percent of GDP in FY2015/16 and
FY2016/17 respectively) to accommodate growth-enhancing capital spending.
Stabilization of the macroeconomic environment. Inflation has more than halved and is now
at historical lows, while the current account deficit improved by over 7 percentage points of
GDP. Foreign reserves now cover 6 months of imports. Improved stability is reflected in
increased business and consumer confidence, as well as a fall in EMBIG bond spread, which is
now aligned with the emerging market average. Jamaica also successfully reentered the
international financial market, issuing external bonds of US$800 million and US$2 billion in 2014
and 2015, respectively, supported by upgrades in the country’s credit ratings by all major rating
agencies.
Strengthening the tax system and tax administration. Tax incentives and discretionary
waivers have been significantly reduced and replaced with a rules-based and transparent
framework (Box 1). Tax administration has been improved through capacity building in the Large
Taxpayers’ Office, better compliance supported by the publication of a National Compliance
Plan, and enhanced tracking of goods in customs with the ASYCUDA World system. In public
financial management, a comprehensive plan has been created to expand the Treasury Single
Account.
Greater financial sector resilience. The legal and regulatory framework for retail repo
transactions of securities’ dealers (SDs)—which finance the acquisition of long-term government
bonds with short-term, deposit-like investments—was improved by transitioning all retail repo
contracts to a trust. Also, backstop facilities for the SDs have been established and the minimum
transaction size for retail repos steadily increased. The foreign asset investment cap for the
collective investment schemes (CIS)—an alternative for retail repos with more transparent risk
distribution—has been increased, encouraging the
development and use of this new investment product.
Meanwhile, gaps in financial sector supervison are
being addressed, including by the new Banking Services
Act which improved the banking supervision
framework, information access, and supervisors’
authority. The Bank of Jamaica (BoJ) Act was amended
to vest the BoJ with overall responsibiility for financial
stability and strengthen its governance structure.
The domestic debt market reopened. Capitalizing on
the liquidity influx from the J$60.4 billion (4 percent of
GDP) bond redemption in February 2016, the government
successfully issued J$15 billion bonds domestically. This
first issuance since the NDX was oversubscribed, with no
adverse effects on the yield curve and the financial sector
INTERNATIONAL MONETARY FUND
5
050100150200250300350400201320142015Sizes of CIS v.s. Retail Repos(In billions of J$)
CIS Funds (Unit Trust)
Retail Repo Contracts
0500010000150002000025000024681012142010Q32010Q42011Q12011Q22011Q32011Q42012Q12012Q22012Q32012Q42013Q12013Q22013Q32013Q42014Q12014Q22014Q32014Q42015Q12015Q22015Q32015Q42016Q1Secondary Government Bond Market Activities
trading volume
average yieldSource: Bank of Jamaica.
JAMAICA
balance sheets. Secondary market trading is also now slowly restarting, which should help
further improve financial intermediation.
Stronger social safety net. During the fiscal consolidation, social expenditures were protected
with a required minimum level of targeted spending, at about 1.5 percent of GDP. The
conditional cash transfer program (PATH) has been strengthened with recurrent increases in
transfer amounts well beyond inflation. A social protection strategy was launched in July 2014,
and a National Poverty Reduction Committee has been tasked with developing a poverty
reduction program.
6. Better business environment. The construction permit approval process was streamlined
to reduce the processing time to 90 days. A new insolvency legislation was passed to streamline the
bankruptcy process and facilitate the rehabilitation of insolvent businesses. An online system for
business registration is being put in place to reduce the turnaround time for registrations to two
days. Supported by these reforms, Jamaica’s ranking in World Bank’s 2016 Doing Business Indicators
improved by 7 positions.
6
INTERNATIONAL MONETARY FUND
-22610141822263034Jan-08Jun-08Nov-08Apr-09Sep-09Feb-10Jul-10Dec-10May-11Oct-11Mar-12Aug-12Jan-13Jun-13Nov-13Apr-14Sep-14Feb-15Jul-15Dec-15
Core contribution
Food, beverages and tobacco
Fuels and energy
Transport
CPI inflation
Core inflationContribution to CPI Inflation(Percent, y-o-y)
-2500-2000-1500-1000-500050010001500
Export, Import and Current Account (In million of USD)
Goods export
Goods import
Service balance
Current account balance
-20246810121416Jan-08Jun-08Nov-08Apr-09Sep-09Feb-10Jul-10Dec-10May-11Oct-11Mar-12Aug-12Jan-13Jun-13Nov-13Apr-14Sep-14Feb-15Jul-15Dec-15May-16Source: Bloomberg.Jamaican Bond SpreadsIMF Stand-ByArrangementIMF Extended Fund FacilityEMBIG yield minus average EMBIG yield forall emerging markets
Jamaican EMBIGyieldAverage EMBIGyield of emerging markets
00.511.522.536065707580859095100105110
NIR and Currency Development
Exchange rate, US$/J$, 2010=100, left
REER, 2010=100, left
NEER, 2010=100, left
NIR, US$ billion, right
JAMAICA
Box 1. Tax and Customs Administration in Jamaica: Reforms and Challenges
Strong FY15/16 performance. Tax revenues in FY15/16 were on target with budget for the first time since the
global financial crisis. Tax revenues were over 25 percent of
GDP, driven by strong arrears collections and improved filing.
Tax policy reforms including (i) transparent incentives which
minimized the room for ministerial discretion (following IMF
TA advice), (ii) the broadening of the GCT base to include
government purchases, electricity and some foodstuffs, and
(iii) the implementation of the Employment Tax Credit have
driven much of the improvement. Capacity building in tax and
customs administration also played a significant role in
improving compliance and doing business.
Significant administration reforms. A key reform of the Tax
Administration of Jamaica (TAJ) has been the strengthening
of the Large Taxpayers’ Office (LTO) which yields half of total Corporate Income Tax (CIT) revenues. Improvements
in LTO are key to safeguarding the revenue base in countries with capacity constraints. Significant reforms have
been undertaken in the context of the program, with the help of an IMF advisor:
Capacity increases and amendments to the Revenue Administration Act have allowed the TAJ to (i) compel for
third-party information to cross-check taxpayers’ information and activities, (ii) require mandatory e-filing for
LTO clients for main tax types including the General Consumption Tax (GCT) and the CIT.
A National Compliance Plan has been published and performance indicators have been established to
improve compliance measurement.
TAJ was empowered to collect outstanding arrears and seize and sell taxpayers’ property.
Customs administration reforms have also focused on capacity strengthening, with the hiring of new auditors for
the Post-Clearance Audit unit, and the implementation of the ASYCUDA World software which has helped
strengthen the tracking of imports and exports. The Jamaica Customs Agency (JCA) and TAJ are respectively
transitioning into full executive agency status and semi-autonomous revenue agency, which will lower costs,
enhance efficiency of service delivery, and improve decision-making and management practices.
Challenges remain. A recent GCT gap analysis by FAD shows that Jamaica’s GCT collections could be higher by as
much as 2 percent of GDP if compliance were improved and by 5 percent of GDP if tax expenditures and policy
were improved. These gaps, while still sizable and on par with Latin America, have been declining in recent years
due to the ongoing reform efforts. Within the region, Jamaica outperforms smaller countries like Dominica,
Barbados and St. Vincent but fares worse than Trinidad and Tobago and Dominican Republic. These gaps are
calculated against a theoretical benchmark and effective gains would likely be much smaller. Nevertheless, the
analysis points to significant gains that could be reaped from improved compliance and policy. As identified by a
recent FAD TADAT assessment, reforms going forward should address inaccurate taxpayer data, low on-time filing
and payment rates, delays in the payment of GCT refunds, and low quality of audits leading to high rates of
objections. In terms of tax policy, a continued broadening of the GCT base will not only reduce the policy gap but
also improve compliance as exemption loopholes are closed.
7. However, the reform dividends in the form of growth and job creation have been
disappointing. Over the past three years, real GDP growth has remained at the historical average of
about 0.6 percent. Despite a decline in the unemployment rate by about 3 percentage points since
2013, it remains high at over 13 percent. The weak growth is partly due to negative external shocks:
the drought conditions for two consecutive years led to a decline in agriculture; the chikungunya
outbreak in 2014/15 reduced labor productivity; and the falling aluminum prices depressed exports.
INTERNATIONAL MONETARY FUND
7
21.5%22.0%22.5%23.0%23.5%24.0%24.5%25.0%25.5%20025030035040045007/0808/0909/1010/1111/1212/1313/1414/1515/16Tax Revenues
Budgeted
Actual
Pct of GDP (RHS)
JAMAICA
However, there have also been positive shocks (e.g., lower global oil prices), though these factors
appear to have done little to support faster growth. The weak growth is reflected in Jamaica’s
Human Development Index which has been declining since 2011. Inequality, which increased from
0.38 in 2001 to 0.46 by 2013, is high with one-fifth of the population living under the poverty line.
RECENT DEVELOPMENTS, OUTLOOK, AND RISKS
A. Recent Developments
8. Forward-looking indicators have improved despite slow growth. Business confidence
has increased to an all-time high in February 2016. Consumer confidence is also trending up. With
agricultural recovery remaining slow, growth is estimated at 0.8 percent in 2015. Good tourism
performance (arrival increased by 2.1 percent y/y in 2015) continued to drive growth, with recovery
in manufacturing, including the normalization of petroleum refinery operation, also contributing.
Net foreign direct investments increased by 30 percent in the first three quarters of FY15/16. The
unemployment rate dropped to 13.3 percent in January 2016 from 14.2 percent in January 2015.
Trade and construction generated the largest employment gains.
8
INTERNATIONAL MONETARY FUND
0.670.690.710.730.750.770.791990200020102011201220132014Human Development Index
Bahamas
Barbados
Trinidad and Tobago
Saint Lucia
Jamaica
-4-2024369123691236912369123691236912201020112012201320142015
Agriculture
Mining
Construction
Other
Real GDP growthContribution to Real GDP Growth(Percent quarterly y/y)
-5-4-3-2-1012345050100150200250300Aug-05Feb-06Aug-06Feb-07Aug-07Feb-08Aug-08Feb-09Aug-09Feb-10Aug-10Feb-11Aug-11Feb-12Aug-12Feb-13Aug-13Feb-14Aug-14Feb-15Aug-15Feb-16
Index of present business conditions
Index of future business conditions
Real GDP growth, y-o-y (right)Source: Bank of Jamaica.Business Conditions and Real GDP GrowthIMF Stand-byArrangementIMF Extended Fund Facility
12.012.513.013.514.014.515.015.516.016.517.0Apr-13Jun-13Aug-13Oct-13Dec-13Feb-14Apr-14Jun-14Aug-14Oct-14Dec-14Feb-15Apr-15Jun-15Aug-15Oct-15Dec-15Unemployment(In percent)
9. Falling oil prices have lowered inflation and the current account deficit. Inflation was
2.4 percent in April 2016, among the lowest historically, primarily owing to lower global oil prices
and continued weakness in domestic demand. The current account deficit was 2.2 percent of GDP in
JAMAICA
Q4 2015, an improvement of 8.7 percent of GDP over Q4
2014. The improvement was mainly due to reduced
import costs of fuels. Exports also declined, partly due to
the drop in bauxite exports. Supported by low inflation in
Q1 2016, the real effective exchange rate depreciated by
2.4 percent y/y; the J$ depreciated by 6 percent against
the US dollar. The BoJ made net foreign exchange (FX)
market sales in the run-up to the general elections to
smooth market movements associated with political
uncertainties as well as from the liquidity injection resulting from a large bond redemption in
February. More recently, net FX market sales have occurred in April/May to reduce the exchange
rate pressure which appears to have resulted from the prospect of a large US$ corporate bond
issuance by a foreign financial institution.
10. The financial system is stable and credit growth is slowly recovering. Financial stability
indicators are improving; the higher risk appetite largely reflects lower bond spread and higher
foreign inflows. Banks’ capital adequacy ratio hovers around 15 percent and NPLs are less than
5 percent of total loans. The banking sector’s profit margin improved slightly in 2015 compared to
the previous year. The December 2015 stress tests
indicated that the banking sector was generally resilient
to shocks. Private sector credit growth is showing some
uptick, increasing by 11 percent y/y in Q1 2016, partly
reflecting increased capital investments in hotel and
business process outsourcing (BPO) industries.
Household debt as a share of disposable income has
risen in the past five years, and was at 70 percent in 2015,
reflecting faster growth of household debt relative to
income growth. Corporate loan growth increased in real
terms slightly by 4.8 percent y/y in 2015. Banks’ exposure
to the corporate sector, however, has declined for three
years in a row, to around 17.2 percent of total bank assets
in 2015, while corporate sector NPLs continued to
decrease. Private lending through corporate bond
issuance has been buoyant, increasing by 24 percent in
Q4 2015 in real terms, albeit from a low base (non-
financial corporate bond stock is estimated at around
30 percent of bank credit stock). The Jamaica Stock
Exchange finished highest globally in 2015—an increase by 97 percent, driven by investor
confidence, higher earnings by listed companies, and greater investor interest from the ongoing
switch from retail repos to collective investment vehicles—and continues to rise in 2016.
INTERNATIONAL MONETARY FUND
9
2. Inward spillover risks3. Credit risks4. Market and liquidityrisks5. Monetary andfinancial conditions6. Risk appetite0246810Financial Stability Map
2014Q1
2016Q1Note: Away from center signifies higher risks, easier monetary and financial conditions, or higher risk appetite.1. Macroeconomic risks
040,00080,000120,000160,000010,00020,00030,00040,00050,00060,00070,00080,00019952000200520102015J$Million
Value Traded
JSE Main Index (RHS)Source: Jamaica Stock Exchange.Jamaica Stock Exchange Main Market
105107109111113115117119121123125-1.049.099.0149.0199.0249.0299.0349.0
Exchange Rate and BoJ Fx Operations
Fx purchases (mn US$, left axis)
FX sales (mn US$, left axis)
Exchange rate (J$/US$), right axis
JAMAICA
B. Outlook and Risks
11. Growth is projected to increase over the medium term. Growth for FY16/17 is revised
down to 1.7 percent, largely reflecting the slower-than-expected increase in investment. Agricultural
recovery is expected to contribute to a third of the real growth for the fiscal year, in addition to a
recovery in manufacturing and sustained growth in BPO, tourism, and trade. Over the medium term,
growth is projected to gradually rise to around 2¾ percent, as large transportation and energy
infrastructure projects come to fruition and planned structural reforms raise private investor
confidence and investment.
12. Inflation and current account balance projections are influenced by oil prices. Headline
inflation is expected to be 5.3 percent (y/y) by end FY16/17, as oil prices recover. Core inflation is
also expected to rise, due to indirect impacts from the oil price increase. The current account deficit
is expected to continue to decline as the economy grows and domestic production gradually
replaces imports.
13. Macroeconomic risks remain significant (Annex I):
Reform fatigue, capacity constraints, and the thin parliamentary majority of the current
government could pose challenges to implementing key reforms. Continued sluggishness in
growth and job creation may undermine public support for reform and fiscal prudence.
Uncertainty regarding the revenues from the ongoing PIT reforms and accompanying revenue
offsets (see ¶37) pose risks to the fiscal position, which may then translate into weaker growth if
disappointing revenues crowd out critical capital spending.
Government financing could be challenged by the still fragile domestic bond market,
competition from potential corporate issuances, and the reliance on financing from international
markets and other IFIs (both of which are dependent on continued strong program
performance).
Growth could also be affected by natural disasters, a worsening of the Zika virus (particularly
insofar as it impacts tourism), and an economic slowdown in trade partners.
Derisking activities from overseas banks may interrupt international financial flows (Box 3 and
¶22).
14. The authorities broadly concurred with the outlook and risks. The BoJ’s growth forecast
is 1.6 percent in FY16/17, with slower-than-expected investment growth being the main risk. They
are optimistic about growth over the medium term, as the new Economic Growth Council’s strategy
for raising growth to 5 percent in four years unfolds, combined with the planned implementation of
the large investment projects in energy and infrastructure. They are, however, concerned about
capacity constraints of the government, which could delay reform implementation.
10
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JAMAICA
PROGRAM IMPLEMENTATION
15. Program implementation has been solid. All quantitative performance criteria (PC) for
end-December 2015 and end-March 2016 were met; the NIR and NDA targets were exceeded by
sizeable margins. Jamaica has outstanding arrears to Iraq, which has consented to Fund financing
notwithstanding these arrears. The central government primary surplus for FY15/16 was 7.4 percent
of GDP, above the target of 7.25 percent of GDP mainly due to the lower nominal GDP. Capital
expenditures were J$33 billion in FY15/16, driven by an overexecution of nearly J$6 billion during
December to March, including the additional fiscal space for growth-enhancing capital spending of
J$4 billion approved at the 10th review.
INTERNATIONAL MONETARY FUND 11
- 1.0 2.0 3.0 4.0 5.0 6.02007/082008/092009/102010/112011/122012/132013/142014/152015/162016/17Percent of GDPCapital Expenditures -Budget vs Outturns
Budget
Outturn
Supplementary budget
05,00010,00015,00020,00025,00030,000Apr-NovDec-MarJ$ MillionsCapital Expenditures FY15/16
Budget
Execution
10th Review PCAdjusted PCsEnd-March 2016PC Status End-MarchEnd-March 2016End-March 2016ActualDifference2016Fiscal targets1. Primary balance of the central government (floor) 3/120.7120.80.1Met2. Tax Revenues (floor) 3/9/393.0411.818.8Met3. Overall balance of the public sector (floor) 3/-14.3-10.826.337.1Met4. Central government direct debt (ceiling) 3/4/77.0-52.8-129.8Met5. Central government guaranteed debt (ceiling) 3/0.0-21.3-21.3Met6. Central government accumulation of domestic arrears (ceiling) 5/11/12/0.00.00.0Met7. Central government accumulation of tax refund arrears (ceiling) 6/11/12/0.0-4.4-4.4Met8. Consolidated government accumulation of external debt payment arrears (ceiling) 5/11/0.00.00.0Met9. Social spending (floor) 8/9/23.226.12.9MetMonetary targets10. Cumulative change in net international reserves (floor) 7/10/14/-339.0-298.6429.0727.6Met11. Cumulative change in net domestic assets (ceiling) 10/14/39.141.3-38.1-79.4Met1/ Targets as defined in the Technical Memorandum of Understanding.2/ Based on program exchange rates defined in the June 2015 TMU.3/ Cumulative flows from April 1.4/ Excludes government guaranteed debt. The central government direct debt excludes IMF credits.5/ Includes debt payments, supplies and other committed spending as per contractual obligations.6/ Includes tax refund arrears as stipulated by law.7/ In millions of U.S. dollars.8/ Indicative target. 9/ Defined as a minimum annual expenditure on specified social protection initiatives and programmes. 10/ Cumulative change from end-March 2014.11/ Continuous performance criterion.12/ Measured as the change in the stock of arrears relative to the stock at end-March 2014. Jamaica: Program Monitoring—Quantitative Performance Criteria Under the Extended Arrangement Under the EFF 1/2/(in billions of Jamaican dollars)
JAMAICA
16. Structural reforms have been broadly on track, though there have been delays in
certain structural measures due to capacity constraints and government transition.
Phase 2 of the RAiS (GENTAX) integrated tax software package was implemented for all major
tax types.
The structural benchmarks on establishing a team for implementing the human resources
software and hiring of new auditors for the customs for post-clearance audit were achieved.
The minimum transaction size for retail repos has been increased to J$1,000,000 and US$10,000.
The investment cap for CIS in foreign assets was raised to 25 percent.
POLICY DISCUSSIONS: PROMOTING STABILITY AND
RAISING POTENTIAL GROWTH
A. Safeguarding Macroeconomic Stability
Fiscal Sustainability
17. Fiscal discipline is the central plank for macroeconomic stability in Jamaica. Decades of
high public debt and interest bills have hindered public service provision, including security,
education, and energy. The risks from a precarious fiscal position have also undermined confidence
and raised risk premia, crowding out private investments. Strong program implementation in the
last three years has improved fiscal credibility and lowered borrowing costs. Staying the course is
critical to further reduce debt and create the space for productive spending.
Improving Monetary Framework
18. Monetary policy should be guided by an overarching mandate for achieving price
stability. Until its recent steady decline, inflation has been high and unstable, making expectations
hard to anchor. Although the BoJ regards inflation target as its nominal anchor, the effectiveness of
actual monetary operation is weakened by the central bank’s multiple objectives, which include
managing credit conditions to promote production, trade, and employment, while maintaining
monetary stability as well as the external value of the
currency. A flexible exchange rate with a firmly
established single mandate for achieving price
stability will bolster BoJ’s policy credibility and provide
clear policy signals. BoJ’s governance and autonomy
also need to be improved to increase transparency
and accountability in conducting monetary policy as
fiscal dominance dissipates. Other factors such as
developing financial markets, advancing modeling and
12
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00.020.040.060.080.10.120.140.160.18JamaicaTrinidad and TobagoBarbadosBelizeThe BahamasVolatility of Price Level(Average coefficient of variation, 2001-2015)
JAMAICA
forecasting ability, and improving policy communication, are also important. The work program for
monetary reforms should be organized around the long-term goal of moving to a full-fledged
inflation targeting regime. The annual inflation targeting readiness review is a helpful step in this
direction.
Strengthening Financial Sector Stability
19. Improving prudential regulations for the retail repo industry is important for financial
stability. Regulatory requirements for SDs need to be tightened and the risks of the retail repo
industry be reduced to a systemically safe and prudentially manageable level, drawing on IMF TA
recommendations. The authorities are currently working on prudential guidelines, including
introducing an operational risk-weighted asset component in calculating the SD’s CAR, requiring
regular stress test reports, and limiting SD’s exposure to any counterparty. They are also aiming to
implement a minimum retail repo leverage ratio. Due to the strong sovereign-financial sector nexus
in Jamaica, the speed of regulatory tightening needs to take into account the health of the SD sector
and domestic financing needs.
20. Strengthening debt management and developing domestic debt markets will help
lower public borrowing costs and financial stability risks. While successful reopening of the
domestic government bond market in February 2016 was an important milestone, more work is
needed to build a deep and liquid domestic debt market (Box 2), so as to reduce the currency,
duration, and concentration risks for both the government and the financial sector. To the extent
that the market conditions and the absorptive capacity of the domestic investor base allow, the
upcoming bond redemptions should be refinanced in the domestic market, to help rebalance the
debt portfolio from FX to local currency (Annex IV). Additional reforms, in line with
recommendations from IMF TA, to reform the primary dealer system and introduce competitive
auctions to replace taps should be pursued.
INTERNATIONAL MONETARY FUND 13
JAMAICA
Box 2. Re-establishing Domestic Bond Market Access
It took Jamaica three years to reestablish domestic market access following the 2013 National Debt
Exchange (NDX). Jamaica regained international market access quickly (in July 2014) supported by strong
program performance, investors’ search for yield, and the exclusion of international bonds from NDX. However,
with 2 debt exchanges in a span of three years, reestablishing domestic market access after the NDX took almost
three years.
The hard work of facilitating debt market development is still ahead. Efforts are needed in:
Prioritizing debt market development in the medium-term debt
management strategy to prevent exclusive focus on meeting
immediate funding needs at the lowest cost. This would include
developing a domestic debt market development plan in
consultation with the key stakeholders, including the private
sector.
Better coordination between the MOFP and the BOJ to avoid
competition between debt and monetary policy objectives, to
address liquidity swings from large bond redemptions coming
up in FY 2017/18.
More active use of liability management operations to enhance
market liquidity and to mitigate refinancing risks. Retiring undervalued bonds or refinancing high-coupon
bonds helps book budget savings, build more liquid benchmarks, and improve the composition of
government’s debt portfolio.
Promoting bond market liquidity by reforming the primary
dealer system to incentivize two-way price making,
switching to an auction-based primary issuance mechanism,
and building a larger T-bill market.
Ensuring stable demand for J$ government bonds by
conducting active outreaches to domestic investors.
Coordination with the regulatory authorities may also be
needed to prevent drastic reduction in the demand for J$
government bonds over the medium term.
21. Reforms on contingency planning and crisis management should continue. A national
crisis management plan and agency-specific contingency plans in all supervisory agencies (BoJ, MoF,
FSC, JDIC) have been adopted. Regular financial crisis simulation exercises are necessary to identify
weaknesses in the plans. Recovery plans for certain participating institutions are needed to give
them access to the emergency liquidity and capital support facilities. A working group led by the
JDIC has been designing reforms to the legal framework for the resolutions of the financial sector,
but tangible progress is still needed.
22. Multi-pronged efforts are needed to address potential future loss of correspondent
banking relationships. The trend of globally active banks scaling back their correspondent banking
presence has caused interruptions in money service businesses (Box 3). While this has not yet
significantly impacted the domestic deposit taking institutions in Jamaica at this point, there is
prospective risk that should be addressed to avoid potential disruptions in financial services and
reputational risks for the financial sector. In this regard, Jamaica should continue to address
14
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PAK '99URG'03DOM'05GRD'04UKR'98JAM'10JAM'13ARG '05ECU '99SEY '08SKI '11GRE '12BLZ'12RUS '980246810120%10%20%30%40%50%60%70%80%90%Time to Market Reaccess (in years)NPV reductionRestructuring and Reprofiling Cases -Time to International Market Reaccess(Based on first international bond issuance following debt treatment, restructuring cases in red, reprofiling cases in green )Sources: Moody's Sovereign Default Series,Bloomberg, and Fund staff estimates.
050,000100,000150,000200,000250,0002015201720192021202320252027202920312033203520372039204120432045204720492051
External
DomesticRedemption Profile, as at end-2015 (In millions of JMD)
JAMAICA
remaining weaknesses in its AML/CFT framework in the context of implementing the
recommendations by the Caribbean Financial Action Task Force’s mutual evaluation, enhance the
risk-based supervision of the financial sector, notably the money service business (MSB) sector, and
effectively communicate its compliance efforts to overseas partners. In addition, contingency plans,
including possible interventions from the BoJ for a limited period, should be prepared in the event
of a broader loss of correspondent bank linkages.
Authorities’ views
23. Authorities concurred with the need to safeguard and further enhance macroeconomic
stability. In particular:
Authorities are cognizant of the gains achieved by the sustained fiscal discipline, including
confidence in both domestic and international markets. They agreed with the need for sustained
consolidation, while also emphasizing the need to rebalance fiscal policy towards growth. They
also agreed that the rising dollarization of government’s debt portfolio needs to be addressed
through active measures to develop the domestic debt market.
They are committed to continued reforms of the SD sector and strengthening the national crisis
management framework and resolution schemes. They expressed concerns about the potential
negative impact of reductions of financial services by overseas banks on financial sector stability
and financial inclusion, and requested Fund support in their effort to communicate the issue
with overseas financial regulators.
They agree with the need to further refine the monetary framework, but emphasized that the
decision to pursue inflation targeting needs to be a deliberate one and further investigation is
needed to determine whether it is a path suitable for Jamaica.
INTERNATIONAL MONETARY FUND 15
JAMAICA
Box 3. Loss of Correspondent Bank Relationships and the Impact on Jamaica
Decisions by globally active banks to scale back operations has affected the operation of money service
businesses (or cambios) in Jamaica. In 2012, the Financial Action Task Force (FATF) issued recommendations that
identified cambios as high risk entities. Enhanced scrutiny by correspondent banks, including requirements for
Jamaican respondent banks to have in place a solid risk management system for suspicious transactions, led to an
intensified assessment and monitoring of cambios. Subsequently, multiple overseas correspondent banks gave
notice to Jamaican domestic banks that prohibited transactions on behalf of cambios through their accounts,
given the difficulty of undertaking due diligence on such transactions. As a result, domestic banks have stopped
cash transactions with cambios altogether (Cash transactions are about 20 percent of total cambio transactions).
There have also been some losses of correspondent bank relationships (CBR). Since 2012, five domestic banks
have had some of their CBRs terminated. But the FX transactions of these banks have not been impacted, as they
were able to maintain their existing relationships with other overseas banks or find replacement for their lost CBRs.
A large Canadian bank exited the Jamaican market in 2014, citing a reevaluation of their business mix as the
reason. However, this appeared unrelated to regulatory restraint and was more a product of a broader realignment
of that bank’s global business model.
The shifting pattern of global banking has not significantly impacted financial flows into Jamaica, but its
implication on financial inclusion could be relevant. Cambio transactions are typically small exchanges with
individuals and provide convenience for workers in the tourism industry. The disruption in cambio services may
also potentially drive FX transactions underground and increase dollarization in Jamaica.
Possible actions are currently being discussed in the Caribbean Community (CARICOM) to mitigate the
impact on the loss of CBRs for the region. These include: (i) collective action and bundling of services to
increase the business volume brought to a smaller number of correspondent banks; (ii) introduction of a scheme
to purchase CBR insurance policies; (iii) the possible creation of a US-licensed special purpose vehicle (SPV) to
process international transactions; and (iv) payment of CBR service fees.
B. Raising Potential Growth and Creating Jobs
24. Jamaica’s growth strategy should focus on fostering the development of a dynamic
private sector (Annex II). Jamaica’s per capita GDP growth has averaged 0.3 percent since 2000; the
current potential growth is less than 1 percent. Investments and FDI inflows are among the lowest in
the region. Traditional goods exports such as bauxite and sugar are losing market share to intense
global competition, while the process of diversifying into new export categories has been slow.
Tourism has contributed to the largest share in total exports of goods and services, but the upward
potential of the sector is constrained by the enclave model that limits positive spillovers into the rest
of the economy. Mobilizing the private sector is essential to support an increase in potential growth.
16
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051015202530BarbadosTrinidad and TobagoDominicaBelizeGuyanaJamaicaCosta RicaDominican RepublicMauritiusSt. VincentAntigua and BarbudaHondurasSt. LuciaBahamas, TheSri LankaSt. Kitts and NevisFixed Investmentto GDP(In percent, average from 2011 to 2015)
024681012141618ArubaSri LankaBermudaMauritiusDominican RepublicCosta RicaJamaicaHondurasBarbadosBahamas, TheDominicaTrinidad and TobagoBelizeSt. LuciaAntigua and BarbudaSt. Vincent and the GrenadinesSt. Kitts and NevisFDI Net Inflows, Average 2000-2014(In percent of GDP)
25. Private sector dynamism is constrained by multiple factors. Staff analysis indicates that
JAMAICA
high crime, lack of financial access and high financing
cost, and high tax compliance cost are among the
primary deterrents to private sector growth. World
Bank’s Doing Business indicators show that trade
facilitation, contract enforcement, and property
registration are some of the areas Jamaica needs
urgent improvement in. In addition, better
infrastructure, greater external competitiveness and
improved public sector efficiency and resource
allocation will help foster private sector-led growth.
Access to and Cost of Financing
26. Low financial access and high financing cost hamper private sector growth. Commercial
banks have historically focused on providing government financing, resulting in crowding out of
private credit. Low level of bank operational efficiency and high taxation of the financial sector have
led to high interest rate margins on loans to the private sector.
27. Efforts are needed on both macro and micro fronts to improve financial access and
reduce the interest rate spread.
Financial regulations. Increasing banking sector competition, including by allowing qualified new
entrants, conditional on implementing requisite supervision and regulation, should help lending
rates become more responsive to policy rate changes and lower interest rate spreads. High
collateral requirements (currently averaging over 200 percent of loan value) hinder financial
access. The Security Interests in Personal Property Act was a helpful step to encourage the use of
movable properties as collaterals, although complementary regulatory changes are needed to
make the new law effective. The reporting requirements for opening bank accounts and
applying for loans are onerous. Implementing a risk-based approach in assessing applicant risks
can help reduce the reporting cost for low-risk borrowers. Improving land titling and creditor
protection, and speedy implementation of the new bankruptcy law are also important.
Taxation. The financial sector currently faces a combination of asset taxes, a higher CIT rate, and
distortionary transaction taxes, resulting in combined statutory tax rates of 40-50 percent. A
more equitable tax treatment across regulated and non-regulated entities would help lower the
interest rate spread and costs of financial services. Reforms could be combined with the
introduction of a capital gains tax and broadening indirect taxation to the financial sector. Tax
reforms, combined with more competition and better credit assessment, could increase private
credit creation and support growth.
Financial services. The development of agency banking services, mobile money products, and
factoring and leasing services should facilitate financial inclusion and deepening, especially
INTERNATIONAL MONETARY FUND 17
1189Starting a Business (9)Dealing withConstruction…Getting Electricity(80)Registering Property(122)Getting Credit (7)Protecting MinorityInvestors (57)Paying Taxes (146)Trading acorssBorders (146)Enforcing Contracts(107)Resolving Insolvency(35)Doing Business Environment-Jamaica Rank(1-best; 189-worst)
JAMAICA
among the under-banked population, such as rural borrowers and SMEs. Advancing electronic
payment/transaction systems can help reduce the usage of cash and bank operating costs.
Equity and debt markets. Developing financial markets to provide alternate financing sources is
important for building private sector entrepreneurship. For example, expansion of the junior
stock exchange should be encouraged. However, this should be achieved by lowering barriers to
entry and simplifying listing requirements—with appropriate risk control—rather than using tax
incentives to encourage listing, which is subject to abuse.
Energy, Logistics, and External Competitiveness
28. Energy generation sources should be diversified to help sustainably reduce energy
cost. Several projects are underway to diversify Jamaica’s energy landscape, including the
conversion in the Bogue power plant from diesel- to natural gas-based power generation and the
new 190MW gas-powered plant by Jamaica Public Service. Upgrading the grid infrastructure and
improving metering and billing should help reduce distribution losses and lower electricity cost.
Strengthening public-private partnerships in renewable energy and the power sector’s regulatory
framework to encourage private-sector participation will facilitate investments in the sector.
29. Efforts are ongoing to improve critical infrastructure. Concession of the Kingston
Container Terminal and privatization of the international airport in Kingston will help modernize and
lower operational costs of both structures, increasing Jamaica’s attractiveness as an investment
destination and a logistics hub. Improving road connectivity across the island would promote
linkages between tourism and the rest of the economy.
30. Exchange rate flexibility is needed to avoid the past patterns of the competitiveness
erosion from currency overvaluation. In applying EBA-lite methodologies on exchange rate
valuation, special consideration is given to external sustainability, given Jamaica’s large negative
international investment position (-140 percent of GDP, Annex III). Convergence to a more
sustainable IIP position (-70 percent of GDP, about the average for other emerging market countries
at a similar GDP per capita level) in a period of no more than 15 years would require a somewhat
more depreciated real effective exchange rate. The equilibrium real exchange rate model also points
to overvaluation, while the current account model points to modest undervaluation. Given the mixed
findings, staff’s view is that the exchange rate is broadly in line with fundamentals. That said, given
the importance of the IIP sustainability, the balance of risks is toward a modest overvaluation, which
was a past pattern that eroded external competitiveness. Thus, it is essential to maintain a floating
exchange rate, with the Jamaican dollar depreciating by at least as much as the inflation differential
with trading partners. Maintaining a flexible exchange rate would imply that interventions in the FX
market—which should be governed by BoJ’s decisions—should be largely for the purpose of
building reserves and smoothing out excessive exchange rate volatility.
18
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Efficient allocation of public resources
31. Further tax policy reforms are needed to support private sector development.
JAMAICA
Notwithstanding tax reform achievements over the last
few years, current PIT, education tax and social
contributions (NIS and NHT) impose high tax rates on
moderate-income workers, discouraging formality. The
ongoing plan to lower the PIT burden is a bold step in
moving away from reliance on distortionary direct taxes,
encouraging formality and rebalancing towards indirect
taxes. These reforms, however, need to be backed by
strong implementation of offsetting measures to
safeguard revenues and avoid undermining fiscal
performance (¶37).
32. Efforts are needed to reduce taxpayer compliance costs and improve tax
administration, particularly given the risk of revenue loss from the ongoing PIT reform.
Significant progress has been achieved in improving compliance among large taxpayers. In the
future, there is scope for expanding audit capacity to improve compliance also among the
medium and small taxpayers.
Also, in light of the new transfer pricing law, and in line with IMF TA advice, a review of Jamaica’s
international tax regime is warranted, with a focus on thin capitalization rules, tax treaties and
withholding taxes. This is especially important given the reliance on taxes from the financial
sector which has large multinational players.
The new Special Economic Zones (SEZ) will also pose leakage risks. Stronger domestic ties from
SEZs, while increasing value added to the economy, will also put additional strain on a still
developing revenue administration. Regulations to safeguard revenues should be passed as
soon as possible, including clear administrative penalties, sanctions against tax evasion, and
strong bonded warehouse controls.
With help from the World Bank, Phase III of the Customs Act is expected to be tabled by
December 2016 and will include measures to facilitate trade and streamline customs procedures
(e.g., uniform documentation requirements, improving multi-agency coordination, and
permitting electronic payments) to lower the costs of compliance to importers and exporters.
33. Improving public sector efficiency will support private sector-led job creation. The
recent announcement of the divestment of Petcom to private investors is a welcome step. The
authorities’ commitment to a time-bound action plan for the divestment of public enterprises and
implementing shared-corporate services (proposed structural benchmark end-September 2016) is
important. A strategic examination of the role of government in different areas will be needed with a
view to scale back some services and prioritize others. Strengthening control systems and
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0%5%10%15%20%25%30%35% 100 400 700 1,000 1,300 1,600 1,900 2,200 2,500 2,800 3,100 3,400 3,700 4,000 4,300 4,600 4,900 5,200 5,500 5,800 6,100 6,400 6,700 7,000 7,300Average and Marginal Tax Rates(Employee contributions)
MTR of NIS + NHT + Ed
MTR PIT
Total MTR
Total ATR
JAMAICA
accountability, and addressing duplication and inefficiencies in public employment will be key first
steps to achieve the 9 percent of GDP wage bill target and open fiscal space for growth-enhancing
capital spending (¶38).
Protecting the poor
34. Strengthening PATH transfers and services is key to protecting the poor and reducing
inequality. Rebalancing from direct to indirect taxes will require improved targeting of PATH
transfers to ensure that any increased funding only goes to the neediest. Speedy implementation of
the national identification system (NIDS) will be an important step in this regard. The first phase of
the project, which included the development of the legislative and institutional framework and
designing the ICT infrastructure, has been completed with IDB support. In addition, services
currently provided through PATH, such as entrepreneurship and skills training, should be
strengthened and expanded to help workers transition into dynamic sectors.
Authorities’ Views
35. There was agreement on the need for reforms to boost growth.
Authorities emphasized that promoting growth is the central mandate of the current
government. They have launched an Economic Growth Council, comprised of private sector
leaders, to advise the government and hold it accountable on initiatives to stimulate growth. The
authorities also plan to invest in agro-parks and water infrastructure, seek out large foreign
investments, and improve skill training for young people, in order to support growth and job
creation.
Authorities noted that the PIT reforms will be an important step in rebalancing from direct to
indirect taxes and could generate compliance dividends from increased formality. They are
committed to increasing the efficiency of the public sector, and noted that the plans for
divestment and outsourcing will yield significant gains. Authorities are cognizant of the risks
posed by transfer pricing practices and SEZs and will seek to put in place containment measures,
while noting that staff should be mindful of capacity constraints.
On the junior stock exchange tax incentive, the authorities noted that the tax incentive played an
instrumental role in SMEs’ decision to go public, and intend to continue implementing the
incentive while tightening rules to prevent its abuse.
On exchange rate valuation, the authorities agree that external competitiveness should be
maintained. But they stressed the importance of exchange rate stability in facilitating economic
activities and reducing dollarization pressure.
20
INTERNATIONAL MONETARY FUND
JAMAICA
PROGRAM POLICIES
A. 2016/17 Budget
36. Fiscal targets for 2016/17 remain unchanged with a primary surplus goal of 7 percent
of GDP. Authorities have reiterated their commitment to fiscal discipline which they see as an
important anchor to stability and confidence. Public debt reduction has been better than expected
in nominal terms, following the PetroCaribe debt buyback. The debt to GDP ratio is expected to
remain broadly constant in FY16/17 due to a
combination of small amortizations during the
year and pre-financing for large redemptions
coming due in early FY17/18. In the current low
inflation and growth environment, the debt-to-
GDP ratio could exceed 102 percent by end-
March 2020 in the absence of further measures.
The government is cognizant of these risks and is
currently identifying measures, including the
scope for debt-for-policy swaps, to reduce debt
to the targeted 96 percent of GDP by end-March
2020, as envisaged at the start of the program.
37. A significant tax package will structurally
improve the tax system.
Starting July 1, 2016, the exemption threshold for the
personal income tax will be raised to J$1,000,272 from
the current J$592,800. A further increase to J$1,500,096
has been announced for April 1, 2017.
The marginal tax rate for earnings above J$6 million will
be increased from 25 to 30 percent on July 1, 2016. The
introduction of a top bracket for higher earners is an
important first step for increased
progressivity in the tax system.
The cost of this tax reform is estimated at
0.7 percent of GDP (about J$12.5 billion) in
FY16/17 and a further 0.9 percent of GDP
(about J$16 billion) in FY17/18.
The revenue loss for FY16/17 will be offset mainly by higher fuel excises and departure taxes,
which are estimated to generate about $14 billion in revenues annually.
INTERNATIONAL MONETARY FUND 21
31.728.024.667.671.474.70%10%20%30%40%50%60%70%80%90%100%FY15/16FY16/17FY17/18Percent total tax revenuesComposition of Tax Revenues
Indirect taxes
Direct taxes
10010511011512012513013514020002200240026002800300015/1616/1717/1818/1919/20% GDPJ$bnPublic Sector Debt(Current Projections vs. EFF Request)
Debt, J$bn (EFF request)
Debt, J$bn (current)
Debt % GDP (current, RHS)
ProratedFull yearRevenue loss from PIT reforms12.515.5Offsetting measures Increase SCT on fuel by J$7 a liter6.57.4 Increase departure tax to US$355.36.4 Increase SCT cigarettes by J$2 per stick0.60.7 Implement new LNG taxation regime1.41.6Total FY16/17 measures13.816.1PIT Reform and Offsetting Measures (J$ billion,FY16/17)
JAMAICA
With the support of IMF TA, authorities are exploring revenue offset options for FY17/18 to
continue rebalancing towards indirect taxation, including the scope for environmental/carbon
taxes. As the balance shifts further toward indirect taxes it will be essential to strengthen
conditional cash transfers to mitigate the impact on the poor.
38. Capital and social spending will continue to be protected and enhanced. Social
spending in FY16/17 remains protected with a floor under the program. Capital spending will
increase by around 2/3 percent of GDP relative to the FY15/16 outturn (including the 1/2 percent of
GDP additional space created at the 10th review). The government’s list of priority projects identified
for the additional space is included in the TMU. The budget includes a contingency reserve of
1 percent of GDP to cover changes in debt service costs and natural disasters, and also to mitigate
potential overruns in the wage bill. However, given the uncertainties surrounding revenues in
FY16/17, it is imperative to identify other revenue and spending contingencies early which can be
deployed if needed to safeguard fiscal targets without compressing capital expenditure.
39. The reduction of the large wage bill, which continues to crowd out other spending,
hinges on reforms to modernize the public sector. The public sector wage bill is budgeted to
exceed 10 percent of GDP in FY16/17, driven by the
downward revision in nominal GDP and delays in reaching
wage agreements with some unions, which shifted their
pay increase from FY15/16 to FY16/17. Given continued
upward pressures in the wage bill, concrete steps have
been agreed with the authorities to strengthen
information and control systems over the wage bill (MEFP
¶10). The costs to economic growth of failing to deliver a
significant reform on the wage bill will likely be significant
because it will continue to entail major difficulties in
financing higher levels of pro-growth public investment
and/or further increasing the tax burden.
Informed by the ongoing compensation review which is expected to be concluded in December
2016, the authorities’ goal is to achieve the wage to GDP ratio of 9 percent by FY18/19 (MEFP
¶10). The compensation review will also provide inputs to the medium-term wage policy to
guide the next round of wage negotiations (expected to begin in November 2016).
The implementation of the human resource management system (HCMES) is ongoing, and the
pace needs to be accelerated by giving it higher priority with more ambitious action plans and
stricter timelines. Strengthening information gathering to arrest duplication and inefficiencies in
public employment are necessary.
The comprehensive review of allowances and the employee verification exercise (both proposed
structural benchmarks for end-November 2016) will represent key first steps to improving control
and oversight over the wage bill. Pilots in the Ministry of Finance and the Public Service will be
implemented for both exercises by end-August 2016. In addition, the allowances pilot will
22
INTERNATIONAL MONETARY FUND
Total allowances3.50 Recurring allowances11.80 Travel allowances (non-recurring)0.73 Ministry of Education, Ministry of Health, and Ministry of National Security0.36 Other Ministries0.37 Other non-recurring allowances0.97 Ministry of Education0.17 Ministry of Security0.07 Ministry of Health0.27 Other Ministries0.461/ Breakdown across ministries is not available.Allowances 2014/15(In percent of GDP)
JAMAICA
encompass Ministry of Health, Ministry of Education and Ministry of National Security, which
together represent the lion’s share of central government employment and receive the majority
of allowances. For the employee verification exercise, the pilot will target public employees in
the civilian workforce of the police, the non-teaching personnel at the Ministry of Education, and
the National Insurance Scheme—areas where turnover of personnel is highest and maximum
gains could be had from a headcount exercise. Significant capacity constraints limit faster
progress in this area; thus, both exercises will be completed for all central government
employees by Q1 2017.
40. Reforms to the public pension system are necessary for its sustainability. Full
implementation of the reforms could lower cash flow costs from the unfunded public pension
system by as much as 0.5 percent of GDP in the long run, with immediate gains of about 0.1 percent
of GDP if the government does not make matching contributions. The new government is expected
to re-table the draft law in parliament by July 2016 (MEFP ¶10). The main features from the previous
draft should be maintained, including the mandatory contribution of 5 percent and increasing the
retirement age to 65 years. These are essential reform measures in order to improve the
sustainability of the system, especially in light of population aging. Parametric changes should also
follow in order to lower an overly generous benefits accrual rate, and reform the benefits calculation
formula.
41. Improvements in public financial management (PFM) will enhance management of
domestic arrears. The approval for the new organizational structure of the Accountant General
Department (proposed structural benchmark end-September 2016) will greatly aid in the
department’s transition to becoming a modern treasury and enhancing its capacity. The ongoing
expansion of the TSA will soon make it the only account in the public sector with a positive balance,
providing a complete picture of the government’s cash position at any point in time. The review of
legal provisions for all revenues to be paid into the Consolidated Fund and improving accounting
and fiscal reporting will also be important steps in this direction.
B. Monetary, Exchange Rate and Financial Sector Policies
42. There is scope for improving liquidity provision and modernizing the structure of
monetary operations. Empirical analysis indicates that the policy rate was broadly aligned with the
neutral rate after the rate cuts by a total of 50 bps in 2015 (Box 4). Meanwhile, the BoJ cut the policy
rate by another 25 bps in May 2016 to 5 percent, given the moderate inflation outlook. More policy
rate cuts are feasible if inflation expectations decrease. Meanwhile, pricing for short-term liquidity
provision (14-day repos) could be further reduced to be consistent with the lowered policy rate. The
transmission from BoJ’s policy rate to market interest rates is relatively weak (Box 4). In line with IMF
TA advice, improving monetary policy effectiveness requires establishing a clear operational target
and further narrowing the interest rate corridor by consolidating the instruments that define its
boundary, taking consistent actions to steer the target within the corridor. Improving the turnover
and depth of the interbank market and the secondary bond market will also help strengthen
monetary transmission.
INTERNATIONAL MONETARY FUND 23
JAMAICA
43. The BoJ should continue to build international reserves. Although the reserve position
has significantly improved over the program period, further accumulation is warranted. The near-
term goal should be to raise reserve coverage
to over 100 percent of the ARA metric by 2017.
In addition, the reliance on both borrowed
reserves and FX surrender requirements should
give way to market purchases overtime. In line
with IMF TA advice, the BoJ intends to move to
fixed-volume FX auctions to improve market
price discovery. The central bank is also
weighing measures to address the risk of
potentially speculative FX positions of financial
institutions that could contribute to further
financial stability.
44. Progress is needed to establish a resolution framework for the financial sector. Clearly
defining the roles and responsibilities of different agencies in the resolution process is critical. As a
next step, a consultation paper with concrete proposals on the framework should be drafted
(proposed structural benchmark for October 2016), following which legislations to support the
framework and the national crisis management plan should be drafted and tabled. The BoJ’s
mandate for financial stability needs to be substantiated with concrete tools, and information
exchange among financial regulators needs to be strengthened. The Financial System Stability
Committee—instituted by the amended BoJ Act in 2015—should be formally established to advice
on evolving financial stability risks and promoting information exchange across the various agencies
(MEFP ¶15).
24
INTERNATIONAL MONETARY FUND
05101520253035404550201120122013201420152016Reserve Adequacy(In percent of GDP)
Reserves
ARA metric
Export revenues
100% of short-term debt
20% of M2
Other liabilities
JAMAICA
Box 4. Monetary Stance and Monetary Transmission in Jamaica
The policy rate is a main tool for calibrating monetary policy stance in Jamaica. To assess the
appropriateness of the monetary stance, it is useful to compare the current rate with the neutral interest rate—i.e.,
the prevailing rate at which output gap is closed and inflation stable.
Several models are used to estimate the neutral rate:
Uncovered interest rate parity (UIP) condition. The method relies on the assumption that nominal domestic
interest rate should be equal to nominal international interest
rate, plus expected nominal depreciation and a country risk
premium.
Dynamic Taylor Rule. In this model the policy rate is assumed
to respond to deviations of (i) inflation from the BoJ’s inflation
target, and (ii) real GDP from its potential.
General equilibrium. This semi-structural model relates the
output gap to the neutral interest rate and the inflation rate to
the output gap (Philips curve).
For the 2nd and 3rd models, systems of equations were estimated using Kalman filter.
Model estimates indicate that the current interest rate is aligned with the neutral rate. Based on quarterly
data from 2000 to 2015, the UIP method suggests the neutral rate for 90-day T-bills to be 6.3 percent at end-2015,
compared to the actual rate of 6 percent. Meanwhile, both the Taylor rule and general equilibrium methods
suggest a neutral rate for BoJ 30-day CDs at around 5.1 percent, compared to the actual rate at 5.25 percent.
Hence, assuming the output gap being closed in 2016 and inflation within target, the interest rate stance appears
broadly appropriate.
Monetary policy is responsive to inflation conditions, but not to output gaps. Estimates show that there is a
positive relationship between inflation gap, i.e. deviation of inflation from its target, and interest rate gap, which
indicates that the policy rate has been adjusted to close the inflation gap. On the other hand, monetary policy has
not been used to actively moderate business cycles. Moreover, regression results show that the policy rate stance
has little effect on economic growth of the subsequent period, indicating potential weakness in monetary
transmission through the credit channel, as discussed below.
Changes in the BoJ policy rate have limited effect on market lending rates. Theoretically, changes in the
central bank’s policy rate will cause changes in inter-bank rates and the interest rates on short-term government
securities in the same direction, through arbitrages among commercial bank asset holdings. A reduction in the
interbank rate from an increased supply of funds will tend to reduce bank lending rate and increase credit
availability. However, these interest rate channels appear to be relatively weak in Jamaica. Results from estimating
a autoregressive distributed lag model using monthly interest
rate data shows that a reduction in the BoJ policy rate by 1 ppt
leads to a 0.4 ppt reduction in the interbank rate over three
months, lower than both advanced and emerging market
averages. The pass-through from interbank rate to bank lending
rate is even lower, at 0.15, compared to 0.3 and 0.9 in the
average advanced and emerging market countries respectively.
In addition, data indicates that the pass-through has been lower
in the more recent period (after 2010), which is likely a result of
the debt exchanges and their impact on bank liquidity and profit.
INTERNATIONAL MONETARY FUND 25
-6-4-20246810
Interest Rate Gap(Actual -Neutral)
Interest rate parity
Taylor rule
General equilibrium
00.20.40.60.811.2Jamaica*Advanced EconomiesEmerging MarketsLICsInterest Rate Passthrough(Cummulative over 3 months)
from policy rate to money market rate
from money market rate to lending rate* 2005 -2015
JAMAICA
C. Other Program Issues
46. Modifications to the quantitative PCs for September 2016 and December 2016 are
proposed. Revisions are proposed to the existing PCs on central government primary balance, tax
revenues, and overall balance of the public sector due to the downward revision to growth. The
following new structural benchmarks are also proposed:
Draft a consultation paper for the resolution framework for the financial sector, including
proposals on (i) the scope, roles and responsibilities, and powers of institutions that would be
covered by the resolution regime; and (ii) the legal structure of the regime (i.e., administrative,
court-based, or a combination (end-October 2016).
Complete a two-part pilot to build a comprehensive database on all allowances paid to public
employees in the Ministries of Finance, Health, Security, and Education (end-November 2016).
Verify each government employee’s work position, eligibility for allowances, and role in the
government, across the Ministry of Finance, the civilian population of the Ministry of Security,
and the NIS, and non-teaching personnel in the Ministry of Education (end-November 2016).
Submit to Cabinet implementation plans and timelines to (i) privatize entities (to be identified by
end-July), (ii) implement shared corporate services across ministries in HR administration and
payroll execution, asset management, communications (end-September 2016).
A new organizational structure of the Accountant General Department will be approved by the
Corporate Management Development (CMD) branch in the Ministry of Finance and the Public
Service (end September 2016).
47. Safeguards assessment. The updated safeguards assessment of the BoJ, completed in
September 2013, found that the BoJ has relatively strong safeguards, particularly in financial
reporting and the audit mechanisms. The BoJ publishes audited financial statements annually and
continues to receive unqualified (clean) audit opinions. In addition, the BoJ has made progress in
further improving the safeguards framework by strengthening its independent oversight functions,
enhancing transparency in the financial statements, and conducting an independent external review
of the internal audit function. There is ongoing work on the recommendation to amend the BoJ Act
to address shortcomings in the legal provisions on governance and autonomy.
48. The program is fully financed and staff’s assessment of Jamaica’s capacity to repay the
Fund remains broadly unchanged (Table 11).
This capacity is deemed adequate, and will
continue to depend on the timely and strong
implementation of the government’s reform
program. External multilateral financing for
FY15/16 has evolved broadly in line with earlier
program assumptions. Debt service to the Fund
and the purchase profile remain unchanged in
the absence of significant revisions to the macroeconomic outlook.
26
INTERNATIONAL MONETARY FUND
2014/152015/162016/17Financing Needs 8413225704Uses of debt financing Budget financing 1/8413225704Financing Sources Short-Term124168228 Medium/Long-Term14042926466 Deposits drawdown-688131101/ For 2015/16, projections include US$1500 financing for the PetroCaribe debt buyback. (In US$ million)Public Borrowing Program
JAMAICA
STATISTICS
49. Weaknesses in data provision need to be addressed. Jamaica currently produces annual
and quarterly GDP estimates by production and annual GDP estimates by expenditure. Work has
started on quarterly GDP statistics by expenditure, and on compiling financial accounts and balance
sheets by institutional sector. The national accounts data is of reasonably good quality. A breakdown
of government and private sector contributions to fixed capital formation would help track the
evolution of sectoral growth drivers overtime. To better assess external competitiveness, more data
is essential on private sector wages and unit labor cost.
STAFF APPRAISAL
50. The government’s reform program, supported with the four-year EFF arrangement
approved in 2013, has been a turning point for the Jamaican economy. The government
embarked on the reform program to break the cycle of high debt and low growth that afflicted
Jamaica for several decades. It embarked on a path of fiscal discipline to restore economic stability,
reduce debt, and enhance growth through a wide range of structural reforms. The fiscal
consolidation and extensive reform agenda have been difficult, yet necessary, in order to reverse the
trajectory of vulnerabilities and achieve sustained stability, growth and job creation.
51. With strong program implementation, macroeconomic stability has been restored and
public debt is declining, but growth remains weak. Macroeconomic stability is marked by
inflation at historical lows, halving of the current account deficit over the program period, doubling
of the NIR, and re-access to domestic and international financial markets. Yet, growth dividends
from the reforms have been slower than expected, and unemployment remains high. The slow
growth recovery is a symptom of entrenched structural bottlenecks whose correction requires
perseverance and continued commitment to difficult reforms.
52. Achieving private-sector led growth requires addressing some deep-rooted structural
issues. A history of fiscal dominance has resulted in inadequate lending to the private sector.
Policies should focus, inter alia, on increasing banking sector competition and reducing collateral
requirements to improve access to finance and inclusion. Reducing crime, lowering energy cost,
reducing tax compliance cost, and improving infrastructure are essential to improve the business
climate and increase private investment. The external competitiveness gains achieved during the
program so far should be maintained by keeping the exchange rate flexible and allowing nominal
depreciation to at least offset the inflation differential with trading partners.
53. The phased PIT reform is a bold step by the new government, which, if done well, will
reorient the tax system towards indirect taxation and improve compliance. The rebalancing
from direct to indirect taxes will reduce the marginal and average tax rates across the majority of PIT
taxpayers, encouraging formality while spreading the tax burden. The new top tax bracket increases
progressivity and fairness. However, revenue neutrality is essential and should be safeguarded
INTERNATIONAL MONETARY FUND 27
JAMAICA
during the reform process. Also, an improved and well-targeted conditional cash transfer system,
backed by a national identification system, will be essential to protect the poor and vulnerable.
54. Public resource allocation must shift significantly towards essential capital spending.
The additional fiscal space created during the 10th review should be preserved solely for growth-
enhancing capital spending, supported by the necessary capacity to execute the budgeted
investment projects. The large public sector wage bill continues to crowd out other crucial
expenditures. Informed by the ongoing compensation review, concrete measures need to be taken
to lower the wage bill, including divestment and outsourcing of public services, and improving
public sector efficiency with the aim to achieve the 9 percent of GDP wage bill target by FY18/19.
Replacing distortive taxes (such as asset taxes, stamp duties and transfer taxes) with high quality
taxes such as capital gains taxes and property taxes while reducing tax compliance cost will support
private sector growth.
55. Reforms to the monetary framework should center on achieving price stability. The
effectiveness of monetary operations is hampered by the multiple objectives of monetary policy.
Maintaining a flexible exchange rate will help clarify the central bank’s single mandate for price
stability and provide the foundations to an eventual shift toward inflation targeting over the long
term. Improving monetary operations will enhance credibility and help reduce interest rate spread.
The BoJ’s liquidity provision should be more consistent with the lowered policy rate, including by
ensuring that the 14-day repo rate staying in the middle of the interest rate corridor.
56. The financial sector should be strengthened through further retail repo reforms and
enhanced financial sector supervision and crisis management. The successful implementation of
the trust framework significantly reduced legal and operational risks of retail repo transactions. The
next step should be to bolster prudential requirements for retail repos and facilitate the reduction of
overall retail repo portfolios to a level deemed by the authorities as systemically safe and
prudentially manageable over the medium term. In addition, a legal framework for the resolution of
banks and securities dealers should be set up without delay. To address rising dollarization and
speculative FX pressures in the financial system, the authorities should explore the feasibility of
introducing prudential limits on the FX net open position of financial institutions.
57. Important risks remain, but continued reform implementation should yield stronger
growth and job creation. Risks include reform fatigue and loss of social support for the reform
agenda in the absence of stronger growth, capacity constraints, thin majority of the government
which may delay reform implementation, and weak revenue performance which could undermine
fiscal consolidation and raise public borrowing costs. Notwithstanding those risks, the government’s
continued demonstrable commitment to the program and reform implementation should boost
confidence and growth, and further buttress fiscal sustainability. Therefore, the staff supports the
authorities’ request to complete the 11th and 12th reviews for the arrangement under the Extended
Fund Facility and the proposed modifications of performance criteria.
28
INTERNATIONAL MONETARY FUND
58. The next Article IV consultation is expected to be held on a 24-month consultation
cycle, in accordance with the Decision on Article IV Consultation Cycles (Decision No. 14747-
(10/96)).
JAMAICA
INTERNATIONAL MONETARY FUND 29
JAMAICA
30
INTERNATIONAL MONETARY FUND
Figure 1. Jamaica: FiscalDevelopmentsSources: Ministry of Finance; and Fund staff calculations.
0123456782010/112011/122012/132013/142014/15Est.2015/16Proj.2016/17Primary Fiscal Balance(percent of GDP)
0246810121422.523.023.524.024.525.025.526.026.52010/112012/132014/15Proj. 2016/17
Wages and salaries (right)
Capital (right)
Tax revenuesRevenue and Expenditure(percent of GDP)
051015202530
Gross Financing Needs(percent of GDP)
The primary fiscal balance is expected to be 7 percent of GDP in FY16/17...... reflecting additional room for capital expenditures and supported by strong tax revenues
The ambitious primary balance mostly covers interest payment obligations, with a nearly equilibrated overall balance.
Grossfinancing needs will return to lower levels in FY16/17, after the large repayments FY2015/16
Primary balance, 7.4Primary balance, 7.0Interest, 7.9Interest, 7.5Overall fiscal balance, -0.5Overall fiscal balance,-0.5-10-6-2261014FY2015/16FY2016/17Interest Payments Primary Fiscal BalanceJamaica: Primary Fiscal Balance vs. Interest Payments, FY2015/16 Outturn and FY2016/17 Budget(in percent of GDP)
JAMAICA
INTERNATIONAL MONETARY FUND 31
Figure 2. Jamaica: Financial Sector Developments
-10010203040502008M72009M32009M112010M72011M32011M112012M72013M32013M112014M72015M32015M11Private Sector Credit and Deposit Growth(percent, y/y)CreditDeposits
0100200300400500600700Banks 2/Insurance CompaniesSecurities DealersFinancing to the Public Sector, December 2015(percent of capital base)
0102030405060708090100JamaicaTrinidad andTobagoSurinameGuyanaBarbadosBelizeECCUBahamasPrivate Sector Credit, December 2015 (percent of GDP)
01020304050607080200120022003200420052006200720082009201020112012201320142015Financial Sector Intermediation(percent of GDP)Credit to the private sectorBusiness loansCredit to the public sector
01020304050602012201320142015
Securities Dealers
Insurance Companies
BanksFinancial Sector Holdings of Public Sector Debt, (percent of total public debt)
Growth of both bank deposits and bank credit has revived recently...
...but the level of bank credit to the private sector remains low...
... including by regional standards.
Ensuring adequate J$ liquidity inthe financial system may help stimulate credit.
The financial sector still holds over 35 percent of public debt...
... with government securities representing a multiple of the capital base.Sources: Bank of Jamaica; and Fund staff calculations.1/ Latest available data.2/ Banks refer to theaggregate of commercial and merchant banks and building societies.
-15000-10000-5000050001000015000-60000-40000-200000200004000060000Jun-13Jul-13Aug-13Sep-13Oct-13Nov-13Dec-13Jan-14Feb-14Mar-14Apr-14May-14Jun-14Jul-14Aug-14Sep-14Oct-14Nov-14Dec-14Jan-15Feb-15Mar-15Apr-15May-15Jun-15Jul-15Aug-15Sep-15Oct-15Nov-15Dec-15Jan-16Feb-16Mar-16Liquidity Condition (in flow, J$ mn)
BOJ FX
OMO
Repo
Other BOJ
GOJ
Net Liquidity (RHS)
JAMAICA
32
INTERNATIONAL MONETARY FUND
Figure 3. Jamaica: Public DebtSources: Bank of Jamaica; Ministry of Finance; and Fund staff calculations.
Government (Domestic)40.4%US$6.8bGovernment (External)52%US$8.8bGovernment guaranteed7.6%US$1.3bTotal Public Debt, 2015/16(percent of total public debt)
1.27%6.15%27.93%6.33%2.74%55.47%0.11%
Bilateral OECD
Bilateral Non-OECD
Multilateral (Excl. IMF)
IMF
Commercial banks
Bonds
Other
3.04.01.33.05.9012345678910Bilateral OECDBilateral Non-OECDMultilateralCommercial banksBondsEffective Interest Rates of CGExternal Debt, 2015/16
9.86.66.42.22.0024681012141618Fixed rateVariable rateCPI indexedUS JDXUS LoansEffective Interest Rates of CGDomestic Debt, 2015/16(percent)
0102030405060<1 year1-5 years>5-10 years>10 years
External debt
Domestic debtDebt Maturity Structureby Type, February 2016(percentof total debt)
External debt has longer maturitythan the domestic debt.
Savings on interest payments will free-up space for public capital expenditure, as the debt-to-GDP ratio falls.
... and carry the highest interest rates.
Domestic nominal interest rates are now single-digit.
More than half ofpublic debt is external and consistsof a wide range of instruments.
Bonds constitute asignificant share of external debt...
04080120160200024681012
Interest Payments and Public Investment Over the Medium term(percent of GDP)
Debt to GDP Ratio (RHS)
Capital Expenditure
Interest Payments
JAMAICA
INTERNATIONAL MONETARY FUND 33
Population (2013): 2.8 millionPer capita GDP (2014): US$4942Quota (current; millions SDRs/% of total): 382.9/0.08%Literacy rate (2011)/Poverty rate (2012): 86.4%/19.9%Main products: Alumina, tourism, chemicals, mineral fuels, bauxite, coffee, sugarUnemployment rate (Jan. 2016): 13.3%Prog.Prog.Prog.2013/142013/142014/152015/162015/162016/172016/172017/182018/192019/202020/212021/22(Annual percent change, unless otherwise indicated)GDP and pricesReal GDP0.91.00.21.40.82.51.72.12.52.72.82.8Nominal GDP10.69.46.95.84.28.95.48.18.98.99.08.7Consumer price index (end of period)9.58.34.06.13.06.55.36.46.06.06.05.5Consumer price index (average)9.69.47.24.33.46.33.65.96.26.06.05.8Exchange rate (end of period, J$/US$)…109.6115.0…122.0…………………Exchange rate (average, J$/US$)…103.9113.1…118.5…………………Nominal depreciation (+), end-of-period…10.85.0………………………End-of-period REER (appreciation +) (INS)…-4.77.3………………………End-of-period REER (appreciation +) (new methodology) 2/…-4.3…………………………Treasury bill rate (end-of-period, percent)…9.17.0………………………Treasury bill rate (average, percent)8.07.97.8………………………Unemployment rate (percent) 3/…13.414.2………………………Government operationsBudgetary revenue26.927.126.327.628.027.428.227.327.026.826.826.8Of which: Tax revenue 4/23.923.623.725.225.425.426.125.825.525.325.325.4Budgetary expenditure26.927.026.828.128.327.829.127.426.626.125.725.5Primary expenditure19.419.518.820.320.620.421.220.320.019.819.819.8Of which: Wage bill10.610.710.210.310.49.710.310.19.59.19.09.0Interest payments 7.57.58.07.87.77.47.97.06.76.35.95.7Budget balance0.10.1-0.5-0.5-0.3-0.4-0.90.00.30.71.11.3Of which: Central government primary balance7.57.67.57.37.47.07.07.07.07.07.07.0Public entities balance -0.50.00.90.01.90.00.00.00.00.00.00.0Public sector balance -0.40.10.4-0.51.6-0.4-0.90.00.30.71.11.3Public debt 5/138.9139.7135.6125.1128.7121.0127.6120.5111.5102.494.586.7External sector Current account balance-9.6-8.1-7.1-3.6-2.4-2.6-2.6-2.5-2.4-2.4-2.6-2.3Of which: Exports of goods, f.o.b.11.810.610.19.88.99.78.88.68.58.48.28.1Of which: Imports of goods, f.o.b.38.737.436.534.331.534.132.232.632.432.131.530.9Net international reserves (US$ millions)1,2481,3042,2942,6072,4272,8852,9563,0573,2443,2903,3493,516Money and credit Net foreign assets6.418.727.914.210.011.316.45.36.73.33.75.5Net domestic assets4.2-12.6-22.3-4.08.7-1.3-7.82.82.25.65.33.2Of which: Credit to the private sector 10.18.23.18.48.211.88.710.512.614.215.515.9Of which: Credit to the central government3.8-3.1-15.216.95.54.02.03.50.5-0.5-4.9-5.8Broad money10.66.15.710.118.79.98.68.18.98.99.08.7Memorandum item:Nominal GDP (J$ billions)1,4781,4631,5641,6541,6301,8021,7181,8572,0212,2012,3982,607Sources: Jamaican authorities; and Fund staff estimates and projections. 1/ Fiscal years run from April 1 to March 31. Authorities' budgets presented according to IMF definitions. 2/ The new methodology uses trade weights for Jamaica that also incorporate trade in services especially tourism.3/ As of January 31.4/ in 2014/15, reflects the extension of the GCT to government purchases, with projected total yield of 0.2 percent of GDP at the time of the sixth review.and updated projected total yield of 0.1 percent of GDP. 5/ Central government direct and guaranteed only, including PetroCaribe debt (net of its financing to the central government) and projected IMF disbursements and other IFIs. Table 1. Jamaica: Selected Economic Indicators 1/(In percent of GDP)(Changes in percent of beginning of period broad money)Projections
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(In millions of Jamaican dollars)Prog.Prel.Prog.2013/142014/152015/162015/162016/172016/172017/182018/192019/202020/212021/22Budgetary revenue and grants396,982411,716456,487455,836494,450484,434507,462544,762590,849642,704699,090Tax 344,848370,878416,686413,971458,334447,978478,852514,908556,844607,488662,645Of which:Income and profits 112,648120,854131,344130,760146,089124,448116,901127,304139,189152,428167,013Of which: Other companies 35,15535,90343,14242,28250,40446,44651,70257,96865,02072,97781,714Of which: PAYE 62,81167,81872,32671,96679,82861,42449,69951,57254,13858,65863,768Production and consumption 115,214120,421132,830133,557147,522141,265159,237170,967185,128204,692226,173Of which: GCT (Local) 1/61,26563,99570,55172,74579,92676,65683,84490,35698,396110,437123,659International Trade 113,892127,238146,074144,706158,228176,464196,106209,439224,711241,904260,328Of which: GCT (Imports) 1/51,23858,47166,10265,80673,44677,34486,25994,837104,309114,800126,048Non-tax 2/41,70535,82132,94636,40129,90031,20721,98524,93628,76729,50830,240Grants10,4295,0186,8545,4636,2165,2496,6254,9185,2385,7086,205Budgetary expenditure395,242419,491464,546460,720501,281499,844507,901538,208574,636616,632664,588Primary expenditure285,322294,474335,575335,040368,326364,861377,493403,285436,782474,820516,582Wage and salaries 3/156,362158,759171,132168,787175,264176,341187,576192,718201,301217,020235,925 Base wage143,347151,056164,719163,515173,764172,881187,576192,718201,301217,020235,925 Backpay 3/13,0157,7026,4135,2721,5003,46000000Programme expenditure 5/91,972112,697129,735133,506135,932144,572138,858152,965167,251181,053197,225 Employer Contributions 4/……………4,8005,2085,3515,5896,0266,550Capital expenditure 5/36,98923,01934,70832,74757,13043,94751,05957,60268,23076,74783,432Interest109,919125,016128,971125,680132,955134,984130,408134,923137,855141,813148,006Domestic68,72975,75670,26771,39162,53762,35562,78862,14960,84058,91762,220External41,19149,26058,70454,28870,41872,62867,61972,77477,01582,89585,786Budget balance1,740-7,775-8,059-4,884-6,831-15,410-4396,55416,21326,07134,503Of which: Primary budget balance111,659117,242120,911120,796126,124119,573129,969141,478154,067167,884182,508Public entities balance 10613,749031,1990000000Public sector balance1,8465,975-8,05926,315-6,831-15,410-4396,55416,21326,07134,503Principal repayments104,12287,299421,161377,44366,11572,500231,837167,832201,796212,729197,199Domestic75,69525,285275,668275,31416,01515,22398,48182,996114,065174,742126,933External28,42762,015145,493102,12950,10057,278133,35684,83687,73037,98670,266Gross financing needs102,38295,074429,220382,32772,94687,911232,276161,277185,583186,657162,696Gross financing sources 102,38295,074429,220382,32772,94687,911232,276161,277185,583186,657162,696Domestic 6/52,21142,30698,10499,56545,90146,92376,55355,86076,131152,13299,631 Of which: compensatory flows from PCDF……11,9255,92714,01114,45415,13715,77316,32316,89517,473External57,619130,512280,780267,25737,16139,740133,23988,80093,52437,44366,082Of which: Official57,61940,05942,27930,17337,16139,74035,89647,37351,98730,92428,361Divestment + deposit drawdown-7,448-77,74550,33615,506-10,1161,24822,48316,61815,928-2,918-3,018Memorandum items:Nominal GDP (billion J$)1,4631,5641,6541,6301,8021,7181,8572,0212,2012,3982,607Public sector debt (billion J$)2,0442,1212,0702,0992,1812,1922,2372,2542,2542,2672,262Of which: Direct debt1,8121,9231,9171,9432,0152,0282,0592,0672,0592,0602,048Sources: Jamaican authorities and Fund staff estimates and projections.1/ in 2014/15, reflects the extension of the GCT to government purchases, with projected total yield of J$3.1 billion at the time of the sixth review and updated to a projected yield of J$1.4 billion.2/ From 2015/16, includes interest receipts from the PetroCaribe Development Fund to reimburse funds from the PetroCaribe debt buyback. 3/ Includes wage arrears from reclassification adjustments prior to 2014/15. 4/ From FY16/17 onwards, authorities have reclassified employer's contributions for health services into the wages line, consistent with GFS. Program definition remains unchanged. 5/ in 2014/15, projections reflect a reclassification of J$8.8 billion from capital outlays to programme expenditures. 6/ in 2015/16, projections include compensation from PCDF to the central government as part of the Petrocaribe buyback operation.Table 2. Jamaica: Summary of Central Government OperationsProjections
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Prog.Prel.Prog.2013/142014/152015/162015/162016/172016/172017/182018/192019/202020/212021/22Budgetary revenue and grants27.126.327.628.027.428.227.327.026.826.826.8Tax 23.623.725.225.425.426.125.825.525.325.325.4Of which:Income and profits 7.77.77.98.08.17.26.36.36.36.46.4Of which: Other companies 2.42.32.62.62.82.72.82.93.03.03.1Of which: PAYE 4.34.34.44.44.43.62.72.62.52.42.4Production and consumption 7.97.78.08.28.28.28.68.58.48.58.7Of which: GCT (Local) 1/4.24.14.34.54.44.54.54.54.54.64.7International Trade 7.88.18.88.98.810.310.610.410.210.110.0Of which: GCT (Imports) 1/3.53.74.04.04.14.54.64.74.74.84.8Non-tax 2/2.92.32.02.21.71.81.21.21.31.21.2Grants0.70.30.40.30.30.30.40.20.20.20.2Budgetary expenditure27.026.828.128.327.829.127.426.626.125.725.5Primary expenditure19.518.820.320.620.421.220.320.019.819.819.8Wage and salaries 3/10.710.210.310.49.710.310.19.59.19.09.0 Base wage9.89.710.010.09.610.110.19.59.19.09.0 Backpay 3/0.90.50.40.30.10.20.00.00.00.00.0Programme expenditure 5/6.37.27.88.27.58.47.57.67.67.57.6 Employer Contributions 4/……………0.30.30.30.30.30.3Capital expenditure 5/2.51.52.12.03.22.62.82.93.13.23.2Interest7.58.07.87.77.47.97.06.76.35.95.7Domestic4.74.84.24.43.53.63.43.12.82.52.4External2.83.13.53.33.94.23.63.63.53.53.3Budget balance0.1-0.5-0.5-0.3-0.4-0.90.00.30.71.11.3Of which: Primary budget balance7.67.57.37.47.07.07.07.07.07.07.0Public entities balance 0.00.90.01.90.00.00.00.00.00.00.0Public sector balance0.10.4-0.51.6-0.4-0.90.00.30.71.11.3Principal repayments7.15.625.523.23.74.212.58.39.28.97.6Domestic5.21.616.716.90.90.95.34.15.27.34.9External1.94.08.86.32.83.37.24.24.01.62.7Gross financing needs7.06.125.923.54.05.112.58.08.47.86.2Gross financing sources 7.06.125.923.54.05.112.58.08.47.86.2Domestic 6/3.62.75.96.12.52.74.12.83.56.33.8 Of which: compensatory flows from PCDF……0.70.40.80.80.80.80.70.70.7External3.98.317.016.42.12.37.24.44.21.62.5Of which: Official3.92.62.61.92.12.31.92.32.41.31.1Divestment + deposit drawdown-0.5-5.03.01.0-0.60.11.20.80.7-0.1-0.1Memorandum items:Nominal GDP (billion J$)1,4631,5641,6541,6301,8021,7181,8572,0212,2012,3982,607Public sector debt (billion J$)2,0442,1212,0702,0992,1812,1922,2372,2542,2542,2672,262Public sector debt139.7135.6125.1128.7121.0127.6120.5111.5102.494.586.7Of which: Direct debt123.9123.0115.9119.1111.8118.0110.9102.393.585.978.5Sources: Jamaican authorities and Fund staff estimates and projections.1/ in 2014/15, reflects the extension of the GCT to government purchases, with projected total yield of 0.2 percent of GDP at thetime of the sixth review and updated to 0.1 percent of GDP.2/ From 2015/16, includes interest receipts from the PetroCaribe Development Fund to reimburse funds from the PetroCaribe debt buyback. 3/ Includes wage arrears from reclassification adjustments prior to 2014/15. 4/ From FY16/17 onwards, authorities have reclassified employer's contributions for health services into the wages line, consistent with GFS. Program definition remains unchanged. 5/ in 2014/15, projections reflect a reclassification of 0.5 percent of GDP from capital outlays to programme expenditures. 6/ in 2015/16, projections include compensation from PCDF to the central government as part of the Petrocaribe buyback operation.Table 3. Jamaica: Summary of Central Government Operations(In percent of GDP)Projections
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2011/122012/13 2013/142014/15Prel. 2015/16Prog. 2016/172011/122012/132013/142014/15Prel. 2015/16Prog. 2016/17Operating balance selected public entities 1/55.260.616.636.555.456.44.44.51.12.33.43.3Of which: Clarendon Aluminum -7.2-1.1-10.1-2.8-0.8…-0.6-0.1-0.7-0.20.0… Petrojam25.115.514.712.924.4…2.01.21.00.81.5… NROCC-0.6-3.3-2.8-5.7-3.9…0.0-0.2-0.2-0.4-0.2… Urban Development Corporation-0.8-0.40.60.3-0.1…-0.10.00.00.00.0… National Water Commission4.08.00.83.55.3…0.30.60.10.20.3… Port Authority of Jamaica2.93.73.85.54.9…0.20.30.30.40.3… National Housing Trust26.929.64.318.918.7…2.12.20.31.21.1… National Insurance Fund1.74.81.41.72.3…0.10.40.10.10.1…Net current transfers from the central government-11.8-15.2-19.1-22.6-29.2-33.1-0.9-1.1-1.3-1.4-1.8-1.9Of which: Clarendon Aluminum 7.53.41.70.00.0…0.60.30.10.00.0… Petrojam-19.2-21.3-18.8-23.2-24.0…-1.5-1.6-1.3-1.5-1.5… NROCC0.23.03.45.24.3…0.00.20.20.30.3… Urban Development Corporation0.70.10.30.50.2…0.10.00.00.00.0… National Water Commission0.01.00.70.10.0…0.00.10.00.00.0… Port Authority of Jamaica0.00.00.00.00.0…0.00.00.00.00.0… National Housing Trust-1.2-4.0-11.4-11.4-11.4…-0.1-0.3-0.8-0.7-0.7… National Insurance Fund0.00.00.00.00.0…0.00.00.00.00.0…Gross capital expenditure selected public entities 2/39.541.639.639.331.451.73.13.12.72.51.93.0Of which: Clarendon Aluminum -0.21.50.40.71.0…0.00.10.00.00.1… Petrojam2.60.21.51.91.6…0.20.00.10.10.1… NROCC0.60.30.40.70.8…0.10.00.00.00.0… Urban Development Corporation0.70.21.80.70.3…0.10.00.10.00.0… National Water Commission4.59.76.06.45.8…0.40.70.40.40.4… Port Authority of Jamaica2.10.80.51.30.6…0.20.10.00.10.0… National Housing Trust25.523.222.320.818.2…2.01.71.51.31.1… National Insurance Fund0.10.00.00.00.0…0.00.00.00.00.0… Other net spending selected public entities 3/0.00.0-27.9-20.7-21.3-16.60.00.0-1.9-1.3-1.3-1.0Overall balance selected public entities3.93.7-14.2-4.716.0-11.80.30.3-1.0-0.31.0-0.7Of which: Clarendon Aluminum 0.50.8-8.5-4.0-0.9…0.00.1-0.6-0.3-0.1… Petrojam3.3-5.9-5.0-4.85.0…0.3-0.4-0.3-0.30.3… NROCC-1.0-0.50.1-1.20.1…-0.10.00.0-0.10.0… Urban Development Corporation-0.8-0.50.6-0.3-1.1…-0.10.00.00.0-0.1… National Water Commission-0.5-0.7-4.5-2.8-0.7…0.0-0.1-0.3-0.20.0… Port Authority of Jamaica0.83.03.74.14.1…0.10.20.30.30.2… National Housing Trust0.22.4-4.70.14.0…0.00.2-0.30.00.2… National Insurance Fund1.64.71.41.72.3…0.10.40.10.10.1…Overall balance other public entities-4.1-1.814.318.515.211.8-0.3-0.11.01.20.90.7Overall balance public entities-0.21.90.113.731.20.00.00.10.00.91.90.0Sources: Jamaican authorities; and Fund staff estimates.1/ Selected public entities refer to a group of the most important 18 public bodies of which 8 are shown. The operating balance is defined as current revenues minus current expenditures after adjustments from accrual accounting to cash basis.2/ Gross of the change in inventories.3/ Other net spending items not captured in the operating balance or gross capital expenditures. Positive number means spending.In billions of Jamaican dollarsIn percent of GDPTable 4. Jamaica: Operations of the Public Entities
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(In millions of U.S. dollars)Prog.Prog.2013/142014/152015/162015/162016/172016/172017/182018/192019/202020/212021/22Current account-1,148-983-493-331-373-351-358-349-381-435-405Trade balance-3,778-3,647-3,396-3,110-3,471-3,223-3,408-3,550-3,702-3,832-3,948Exports (f.o.b.)1,4951,4011,3611,2271,3861,2121,2261,2631,3071,3541,394Imports (f.o.b.)5,2745,0474,7564,3374,8574,4364,6344,8135,0095,1865,342Fuel (cif)2,1581,7591,0779881,1057789111,0011,0821,1411,181Exceptional imports (including FDI-related)394284400400400400330300300300300Other2,7223,0043,2792,9483,3523,2583,3933,5123,6273,7453,861Services (net)6006988518519798639641,0651,1631,2701,388Transportation-702-635-687-575-706-709-732-759-791-824-856Travel1,9132,0962,2582,1832,4232,3772,5282,6872,8553,0333,223Of which: Tourism receipts2,0952,3062,4612,3942,6332,5942,7522,9203,0993,2883,489Other services-611-763-720-757-738-806-832-863-901-940-979Income (net) 4/-228-314-277-400-284-393-382-386-394-455-457Current transfers (net)2,2582,2792,3282,3282,4032,4032,4682,5222,5522,5822,613Government (net)265200205205209209213217222226231Private (net)1,9932,0792,1242,1242,1952,1952,2552,3052,3302,3562,3820Capital and financial account1,5661,973806715651881459536427494572Capital account (net)-26-19-19-19-19-19-19-19-19-19-19Financial account (net) 1/1,5921,992825734670900478555446513591Direct investment (net)552589530740547678636634631629626Central government (net) 5/2416003,0563,315-302-141-129419696Of which: IFIs37618133123132532500000Other official (net) 2/ 5/35678-2,822-2,822179140132112921818Of which: PetroCaribe369161-2,886-2,8851389992735400Portfolio investment (net)44372661-499247222-289-220-319-230-150Overall balance4189903133842785301011874659167Financing-418-990-313-384-278-530-101-187-46-59-167Change in gross reserves (- increase)-330-641-440-229-437-689-85-1176248-60Change in arrears00000000001Financing gap-88-349127-155159159-16-70-108-107-107IMF 3/-26-163127127159159-16-70-108-107-107Disbursements34625917617615915900000Repayments-372-422-50-5000-16-70-108-107-107Memorandum items:Gross international reserves2,0492,6903,1302,9183,5663,6073,6923,8093,7473,6993,759 (in weeks of prospective imports of GNFS)14.519.323.323.525.927.727.227.025.524.323.9Net international reserves1,3042,2942,6072,4272,8852,9563,0573,2443,2903,3493,516Current account (percent of GDP)-8.1-7.1-3.6-2.4-2.6-2.6-2.5-2.4-2.4-2.6-2.3Exports of goods (percent change)-14.2-6.3-5.1-12.41.9-1.21.13.03.53.63.0Imports of goods (percent change)-7.3-4.3-5.6-14.12.12.34.53.94.13.53.0Oil prices (composite, fiscal year basis)102.184.951.346.851.636.341.945.348.049.750.5Tourism receipts (percent change)1.910.16.83.87.08.36.16.16.16.16.1GDP (US$ millions)14,08613,832…13,753…………………Jamaican dollar/USD, period average104113…119………………… Sources: Jamaican authorities; and Fund staff estimates. 1/ Includes estimates of a partial payment for the sales of a rum company in 2008/09. 2/ Includes the new general SDR allocation in 2009/10. 3/ Negative indicates repayment to the IMF. 4/ Starting FY2011/12, interest payments to non-residents were adjusted to reflect resident holdings of GOJ global bonds. 5/ in 2015/16, projections reflect inflows and outflows associated with the Petrocaribe debt buyback. Table 5. Jamaica: Summary Balance of PaymentsProjections
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Prog.Prog.2013/142014/152015/162015/162016/172016/172017/182018/192019/202020/212021/22(In billions of Jamaican dollars)End-of-period stocks 1/Net foreign assets143264322294373377409450472497539Net domestic assets-48-163-210-174-249-246-262-287-294-304-329Net claims on public sector19511214445133115113140150150146Net claims on central government 7517674057416480969390Net claims on rest of public sector13010283-585755766626463Operating losses of the BOJ-10-8-610-10-1-8-6-8-8-7Net credit to commercial banks-21-24-26-28-29-22-22-24-25-28-31Of which: foreign prudential reserve-21-24-26-28-29-22-22-24-25-28-31Net credit to other financial institutions -2-2-2-2-2-2-3-3-3-3-3Open market operations-31-39-112-58-117-189-181-214-213-200-200Other items net (incl. valuation adj.)-189-210-214-130-233-148-169-186-204-223-241 Of which: Valuation adjustment-61-70-68-75-87-92-114-131-148-167-1850Base money94101112120125131147163177193210Currency in circulation5459657073636872778186Liabilities to commercial banks4142475051687991101112124Fiscal year flows 1/Net foreign assets55.4121.058.030.451.683.031.940.422.025.641.80.0Net domestic assets-52.3-114.4-47.0-11.4-38.7-71.9-16.1-24.5-7.5-9.7-25.0Net claims on public sector-17.7-82.632.1-66.9-11.270.0-1.926.710.2-0.6-3.3Net claims on central government -7.4-57.450.222.5-10.11.222.516.615.9-2.9-3.0Net credit to commercial banks-1.5-2.5-2.2-4.6-3.16.9-0.7-1.5-1.6-2.4-3.2Net credit to other financial institutions 0.0-0.1-0.1-0.6-0.10.0-0.2-0.1-0.2-0.2-0.2Open market operations23.8-8.3-73.1-19.1-5.5-131.58.1-32.71.412.40.2Other items net (incl. valuation adj.)-56.9-20.8-3.779.8-18.8-17.4-21.4-16.9-17.4-19.0-18.4Base money3.16.710.918.912.911.115.815.914.515.916.8Currency in circulation3.04.96.611.78.1-7.25.14.04.34.64.6Liabilities to commercial banks0.21.74.47.24.718.310.711.910.211.312.2(Change in percent of beginning-of-period Base Money) Net foreign assets60.7128.257.430.046.069.224.327.513.514.521.7Net domestic assets-57.3-121.1-46.5-11.3-34.5-59.9-12.3-16.7-4.6-5.5-12.9Net claims on public sector-19.4-87.431.8-66.2-10.058.4-1.418.26.3-0.3-1.7Net credit to commercial banks -1.7-2.6-2.2-4.5-2.85.8-0.6-1.0-1.0-1.3-1.7Net credit to other financial institutions0.1-0.1-0.1-0.6-0.10.0-0.1-0.1-0.1-0.1-0.1Open market operations26.0-8.8-72.3-18.9-4.9-109.66.2-22.30.97.00.1Other items net (incl. valuation adj.)-62.3-22.1-3.778.9-16.8-14.5-16.3-11.5-10.7-10.7-9.5Base money3.47.010.818.711.59.212.110.88.99.08.7Currency in circulation3.35.26.511.67.3-6.03.92.72.62.62.4Liabilities to commercial banks0.21.84.37.24.215.28.28.16.36.46.3Memorandum items:Change in net claims on the central government (percent of GDP)-0.5-3.73.01.4-0.60.11.20.80.7-0.1-0.1Sources: Bank of Jamaica; and Fund staff estimates.1/ Fiscal year runs from April 1 to March 31.Table 6. Jamaica: Summary Accounts of the Bank of Jamaica 1/Projections
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Prog.Prog.2013/142014/152015/162015/162016/172016/172017/182018/192019/202020/212021/22End-of-period stocks 1/ Net foreign assets191309372353427439469.7511.2533.7560.6604.8Net domestic assets229136118174111133149.2162.5200.0238.8264.3Net claims on public sector268188250118273203196.9204.8189.7148.592.4Of which: Central government 2/173109184134204145164.8167.8164.8128.882.2Open market operations1814-9915-164-139-153.8-206.0-227.6-238.8-262.3Credit to private sector326339377376435422481.7559.9655.2768.9895.8Of which: Foreign currency 84777984838893.498.1104.0111.5120.3Other -383-407-411-335-433-352-375.7-396.2-417.3-439.8-461.6Of which: Valuation adjustment -61-70-65-75-81-89-105.7-119.2-132.9-147.5-161.2Liabilities to private sector (M3)421444489527538573618.9673.7733.7799.4869.1Money supply (M2) 261273294310320333371.1409.1451.1490.6524.4Foreign currency deposits160171195217218239247.8264.6282.5308.9344.7Fiscal year flows 1/Net foreign assets74.1117.462.944.355.186.430.441.522.526.944.2Net domestic assets-50.0-93.6-17.938.6-6.6-41.015.813.337.538.925.5Net claims on public sector -25.4-79.562.1-70.522.985.5-6.57.9-15.1-41.2-56.1Of which: Central government-12.4-63.975.024.319.810.820.33.0-3.0-36.0-46.7Open market operations54.4-3.8-113.10.7-65.5-154.6-14.4-52.1-21.6-11.2-23.6Credit to private sector32.313.237.536.557.845.760.078.195.3113.7126.9Of which: Foreign currency2.4-7.32.37.73.83.85.24.85.97.58.8Other 2/-111.3-23.5-4.372.0-21.7-17.7-23.4-20.5-21.2-22.5-21.7Of which: Valuation adjustment -3.9-8.94.4-5.4-16.1-13.8-17.1-13.4-13.7-14.6-13.8Liabilities to private sector (M3)24.123.845.082.948.545.446.254.860.065.869.6Money supply (M2)8.412.721.037.225.322.837.938.042.039.533.9Foreign currency deposits15.711.124.045.723.222.68.316.817.926.335.8(Change in percent of beginning-of-period M3) Net foreign assets18.727.914.210.011.316.45.36.73.33.75.5Net domestic assets-12.6-22.3-4.08.7-1.3-7.82.82.25.65.33.2Net claims on public sector -6.4-18.914.0-15.94.716.2-1.11.3-2.2-5.6-7.0Of which: Central government-3.1-15.216.95.54.02.03.50.5-0.5-4.9-5.8Open market operations13.7-0.9-25.50.2-13.4-29.3-2.5-8.4-3.2-1.5-2.9Credit to private sector8.23.18.48.211.88.710.512.614.215.515.9Of which: Foreign currency 0.6-1.70.51.70.80.70.90.80.91.01.1Other 2/-28.1-5.6-1.016.2-4.4-3.4-4.1-3.3-3.1-3.1-2.7Of which: Valuation adjustment -1.0-2.11.0-1.2-3.3-2.6-3.0-2.2-2.0-2.0-1.7Liabilities to private sector (M3)6.15.710.118.79.98.68.18.98.99.08.7Memorandum items:M3/monetary base4.54.44.44.44.34.44.24.14.14.14.1M3 velocity3.53.53.43.13.43.03.03.03.03.03.0Sources: Bank of Jamaica; and Fund staff estimates and projections.1/ Fiscal year runs from April 1 to March 31.2/ Includes net credit to nonbank financial institutions, capital accounts, valuation adjustment, securities sold under repurchase agreements and net unclassified assets.Table 7. Jamaica: Summary Monetary Survey 1/(In billions of Jamaican dollars)Projections
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200720082009201020112012201320142015Balance sheet growth (y/y)Capital11.514.713.85.15.44.217.16.68.5Loans28.724.25.3-1.44.812.914.16.69.4NPLs14.257.668.036.144.0-10.8-12.9-2.2-11.6LiquidityExcess liquidity 2/25.030.331.336.230.526.725.331.526.5Asset QualityProv. for loan losses/NPLs103.487.275.769.975.290.395.7104.7105.5NPLs/loans2.32.94.76.58.97.05.44.94.1Capital AdequacyNPLs/Capital+Prov. for loan losses9.112.317.722.328.424.118.817.114.6Capital Adequacy Ratio (CAR) 3/16.015.218.818.216.114.115.115.914.9Profitability 4/ 5/Pre-tax profit margin26.726.221.421.130.821.419.020.321.2Return on average assets3.43.52.92.53.92.42.02.12.1Source: Bank of Jamaica.1/ Commercial banks, building societies, and merchant banks.2/ Statutory liquid assets/prescribed liabilities.3/ If not end-quarter, data corresponds to last quarter.4/ The significant increase in profitability for 2011 is due to an up-stream dividend from one insurancesubsidiary to its parent bank. Without such dividend pre-tax profit margin and return on average assetswould be 18.1 and 2.3 percent, respectively.5/ Calendar year or end-quarter.Table 8. Jamaica: Financial Sector Indicators 1/(In percent)
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MeasuresStatus/TimingStructural BenchmarksTimingImplementation statusInstitutional fiscal reforms1. Revise the relevant legislation for the adoption of a fiscal rule to ensure a sustainable budgetary balance, to be incorporated in the annual budgets starting with the 2014/15 budget.March 31, 2014Met2. Government to finalize a review of public sector employment and remuneration that serves to inform policy reform.March 31, 2014Met3. Government to ensure there is: (i) no financing of Clarendon Alumina Production (CAP) by the government or any public body, including Petro Caribe; and (ii) no new government guarantee for CAP or use of public assets (other than shares in CAP and assets owned by CAP) as collateral for third-party financing of CAP.ContinuousMet4. Government to table in parliament a budget for 2014/15 consistent with the program.April 30, 2014Met5. Government to table in parliament a comprehensive Public Sector Investment Program (MEFP paragraph 17, Country Report No. 13/378).April 30, 2014Met6. Cap the total loan value of all new user-funded PPPs at 3 percent of GDP on a cumulative basis over the program period.ContinuousMet7. Ensure that the public service database e-census is up to date and covers all Ministries, Departments and Agencies.September 10, 2014Met8. Develop an action plan for public sector transformation to cover the following areas: (1) the introduction of shared corporate services, (2) the reallocation, merger, abolition and divestment/privatization of departments and agencies, (3) outsourcing of services, (4) strengthening control systems and accountability (including in auditing and procurement), and (5) aligning remuneration with job requirements.September 30, 2014Met9. Government to table changes in legislation for the new public sector pension system expected to be implemented by April 2016 (MEFP paragraph 25, Country Report No. 14/169).November 30, 2015Met10. Government to establish a new Cash Management Unit in the Accountant General Department (AGD) and transfer to it the cash management function currently handled by the Fiscal Policy Management Unit (FPMU).September 30, 2015Met11. Put in place a full-time dedicated project management team for the implementation of the human resources software system (including specialists in the areas of Business Process Mapping, Human Resource Management, Payroll Administration and Data Migration).January 31, 2016Met12. Develop and submit to Cabinet for approval a new policy on public bodies that will ensure consistent PFM rules for public bodies. June 30, 201613. Submit to Cabinet an action plan for public sector transformation by end-September 2016. In particular, it will include detailed timelines for (1) the introduction of shared corporate services for communications and human resource management and (2) the merger, abolition and/or divestment/privatization of entities. The plan will also outline specific areas where efficiency gains can be made. September 30 2016Proposed14. The Corporate Management Development (CMD) branch in the Ministry of Finance and Public Service to approve a new organizational structure for the Accountant General’s Department.September 30 2016Proposed15. Complete a two-part island-wide pilot to build a comprehensive database on all allowances paid to public employees in the Ministries of Finance, Health, Security, and Education.The database will be by occupational grouping and will include all types of allowances paid, their amounts as well as the number of employees that benefit from each type of allowance in a given fiscal year. November 30, 2016Proposed16. Verify each government employee’s work post and eligibility for allowances in a two-part pilot across the Ministry of Finance, the civilian population of the Ministry of Security, and the NIS, and non-teaching personnel in the Ministry of Education.November 30, 2016ProposedTax Reform17. Government to implement the Cabinet decision stipulating the immediate cessation of granting of discretionary waivers as stipulated in the TMU.ContinuousMet18. Broader tax reform to become effective, including the modernization of taxes, with limited exemptions, and lower tax rates (paragraphs 6, 7, 8, and 9 of the MEFP for Country Report 13/378) and as stipulated in par. 13 of the March 2014 MEFP.March 31, 2014Met19. Government to table in parliament amendments to the GCT as stipulated in paragraph 12 of the June 2014 MEFP.June 30, 2014Met20. Government to conduct an entity by entity review of all grandfathered entities and of their specific tax incentives in the context of the new tax incentives legislation by end-2014/15.January 31, 2015Not met 1/21. Government to table legislation governing the tax regime that will be part of the SEZ legislation consistent with the criteria listed in the June 2015 MEFP par. 13 to help safeguard the integrity of the tax system and avoid tax leakage. October 31, 2015MetTax Administration22. Government to make e-filing mandatory for LTO clients with respect to General Consumption Tax (GCT) and Corporate Income Tax (CIT).March 31, 2014Met23. Government to implement ASYCUDA World for the Kingston Port as a pilot site.December 31, 2014Met24. Government to: (i) increase the number of staff in the large taxpayers office (LTO) by a further 30 auditors (from March 2014 to March 2015); (ii) increase the number of (full plus issue) audits completed in the LTO by 100 percent (from FY 2013/14 to FY 2014/15); (iii) achieve 95 percent take up rate of e-filing and e-payment in the LTO; (iv) write-off all GCT and SCT debts that have been subjected to risk-rated stress tests and consequently categorized as uncollectible according to the Regulations.March 31, 2015Not met 2/25. Government to complete pilot testing of ASYCUDA World (covering imports and exports) in the Kingston port.May 31, 2015Met26. Government to implement Phase 1 (Registration, GCT, SCT, GART, Telephone) of the GENTAX integrated tax software package.February 28, 2015MetTable 9. Jamaica: Structural Program Conditionality
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27. Government to table in Parliament proposals for a comprehensive overhaul of the Customs Act.June 30, 2015Met28. Government to fully implement the key performance indicators, as outlined in the National Compliance Plan, to measure the effectiveness and efficiency of the tax system.November 30, 2015Met29. Government to implement Phase 2 of the RAiS (GENTAX) integrated tax software package, for all major tax types. December 31, 2015Met30. Increase the capacity of the Post-Clearance Audit (PCA) unit in the JCA through the hiring of 15 more auditors.March 31, 2016MetFinancial sector31. Government to table legislative changes regarding unlawful financial operations, consistent with Fund TA advice provided in July 2010.March 31, 2014Met32. Government to submit proposals for a distinct treatment for retail repo client interests in the legal and regulatory framework to the relevant financial industry for consultation (MEFP March 2014 Paragraph 25) in consultation with Fund staff.March 31, 2014Met33. Government to establish a distinct treatment for retail repo client interests in the legal and regulatory framework (June 2014 MEFP Paragraph 29) in consultation with Fund staff.December 30, 2014Met34. Government to table the Omnibus Banking Law 3/ consistent with Fund Staff advice to facilitate effective supervision of the financial sector.March 31, 2014Met 4/35. Government to finalize the transition of retail repos to the trust-based framework.August 30, 2015Met36. Government to fully implement the Banking Services Act.September 30, 2015Met37. The BOJ to have overall responsibility for financial stability. November 1, 2015Met38. Draft a consultation paper for the resolution framework for the entire financial sector, including proposals on (i) the scope, roles and responsibilities, and powers of institutions that would be covered by the resolution regime; and (ii) the legal structure of the regime (i.e., administrative, court-based, or a combination).October 31, 2016ProposedGrowth enhancing structural reforms39. Government to implement a new (AMANDA) tracking system to track approval of contruction permits across all parish councils.December 30, 2014Met40. Government to table in parliament the Electricity Act.January 31, 2015Met1/ The review was reportedly completed in March 2015.3/ Currently referred to as the Banking Services Act.4/ The law was tabled in March 2014 with subsequent fine-tuning in collaboration with Fund staff prior to its adoption in June. Table 9. Jamaica: Structural Program Conditionality (Concluded) 2/ While all other elements of the benchmarks were met, technical difficulties prevented the achievement of 95 percent take-up rate of e-filing in the LTO. The take-up rate was 80 percent.
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20142017End-Dec.End-JuneEnd-Mar.StockPCAdjusted PCActualPCAdjusted PCActualPCPCProposed revised PCProposed PCIndicative TargetsFiscal targets1. Primary balance of the central government (floor) 4/60.766.0120.7120.811.033.029.054.0119.52. Tax Revenues (floor) 4/9/280.0291.7393.0411.899.0203.0198.0300.0440.03. Overall balance of the public sector (floor) 4/-40.3-36.84.4-14.3-10.826.3-29.0-37.0-41.0-51.5-17.24. Central government direct debt (ceiling) 4/5/47.01.577.0-52.819.541.045.055.061.05. Central government guaranteed debt (ceiling) 4/0.0-19.20.0-21.30.00.00.00.00.06. Central government accumulation of domestic arrears (ceiling) 6/12/13/21.60.0-1.20.00.00.00.00.00.00.07. Central government accumulation of tax refund arrears (ceiling) 7/12/13/23.20.0-5.30.0-4.40.00.00.00.00.08. Consolidated government accumulation of external debt payment arrears (ceiling) 6/12/0.00.00.00.00.00.00.00.00.09. Social spending (floor) 9/10/15.620.823.226.14.89.79.716.424.3Monetary targets10. Cumulative change in net international reserves (floor) 8/11/14/1997.7-338.0-341.1442.2-339.0-384.0429.0-199.6-49.6-49.652.3152.311. Cumulative change in net domestic assets (ceiling) 11/14/-120.261.849.6-37.439.151.1-38.128.79.09.021.9-2.01/ Targets as defined in the Technical Memorandum of Understanding.2/ Including proposed modified performance criteria for the net international reserves and the net domestic assets.3/ Based on program exchange rates defined in the March 2015 TMU.4/ Cumulative flows from April 1 through March 31.5/ Excludes government guaranteed debt. The central government direct debt excludes IMF credits.6/ Includes debt payments, supplies and other committed spending as per contractual obligations.7/ Includes tax refund arrears as stipulated by law.8/ In millions of U.S. dollars.9/ Indicative target. 10/ Defined as a minimum annual expenditure on specified social protection initiatives and programmes. 11/ Cumulative change from end-December 2014.12/ Continuous performance criterion. 13/ The accumulation is measured against the stock at end-March 2015, which is J$21.3 billion for domestic arrears and J$21.7 billion for tax arrears. 2015 End-Dec.Table 10. Jamaica: Quantitative Performance Criteria 1/2/3/End-MarchEnd-Dec.(In billions of Jamaican dollars)2016 End-Sept
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201620172018201920202021202220232024202520262027Prospective drawings (4-year EFF)113.2828.33………………………… (in percent of quota)41.4210.36…………………………Amortization0.0011.4037.1164.8083.68100.20102.5691.1765.4637.7618.882.36 Amortization (SBA)0.000.000.000.000.000.000.000.000.000.000.000.00 Amortization (4-year EFF)0.0011.4037.1164.8083.68100.20102.5691.1765.4637.7618.882.36Interest and service charges4.556.446.265.795.074.153.092.021.140.530.170.01SDR charges and assessments0.030.040.040.040.040.040.040.040.040.040.040.04Total debt service4.5817.8843.4170.6488.80104.40105.7093.2366.6438.3419.102.42 (in percent of exports of G&S)0.150.581.342.072.47 (in percent of GDP)0.050.190.440.670.810.900.870.730.500.270.130.02Outstanding stock587.05603.98566.88502.08418.39318.19215.63124.4659.0021.242.360.00 (in percent of quota)214.64220.83207.27183.58152.98116.3478.8445.5121.577.770.860.00 (in percent of GDP)6.366.345.704.793.792.751.770.980.440.150.020.00Memorandum items:Exports of goods and services (US$ millions)4,407.324,604.424,838.575,091.025,356.765,628.11……………US$/SDR exchange rate……………………………Quota273.50273.50273.50273.50273.50273.50273.50273.50273.50273.50273.50273.50Source: Fund staff estimates.1/ Jamaica's old quota of SDR 273.50 million is included in the table since Jamaica chose to be grandfathered for surcharges (old quota/old policy on surcharges). Jamaica's new quota is SDR 382.9 million.(Projected Debt Service to the Fund based on Existing and Prospective Drawings)(Projected Level of Credit Outstanding based on Existing and Prospective Drawings)Table 11. Jamaica: Indicators of Fund Credit, 2015-26(In millions of SDRs, unless otherwise specified)
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Table 12. Jamaica: Schedule of Reviews and PurchasesAvailability DateMillions of SDRPercent of QuotaConditions 1/May 1, 2013136.7536Approval of Arrangement September 30, 201319.975First Review and end-June 2013 performance criteriaDecember 18, 201319.975Second Review and end-September 2013 performance criteria March 19, 201445.9512Third Review and end-December 2013 performance criteria June 20, 201445.9512Fourth Review and end-March 2014 performance criteria September 24, 201445.9512Fifth Review and end-June 2014 performance criteria December 19, 201445.9512Sixth Review and end-September 2014 performance criteria March 30, 201528.327Seventh Review and end-December 2014 performance criteria June 16, 201528.327Eighth Review and end-March 2015 performance criteria September 23, 201528.327Ninth Review and end-June 2015 performance criteria December 16, 201528.327Tenth Review and end-September 2015 performance criteria March 15, 201628.327Eleventh Review and end-December 2015 performance criteria June 15, 201628.327Twelfth Review and end-March 2016 performance criteria September 15, 201628.327Thirteenth Review and end-June 2016 performance criteria December 15, 201628.327Fourteenth Review and end-September 2016 performance criteria March 15, 201728.337Fifteenth Review and end-December 2016 performance criteria Total615.38160.71/ Apart from periodic performance criteria, conditions also include continuous performance criteria.Amount of PurchasePurchases
JAMAICA
Annex I. Risk Assessment Matrix
Table A1.1. Jamaica: Risk Assessment Matrix1
Main Threats
Likelihood of Realization of the Threat
Expected Impact if Threat is Realized
Delays in implementing
the reform agenda.
A change in policy
direction of the
government.
Delays in the pickup of
investment and growth.
Acute fiscal and/or
external financing
pressures.
Improving US economic
prospects leading to a
further dollar surge
Sharper-than-expected
global growth slowdown
Reduced financial
services by global and
regional banks
Natural disasters and
epidemics.
High
High
The heavy reform agenda, especially legislations, is
testing capacity limits, contributing to reform
delays. Reform fatigue and lack of political will may
aggravate tackling important, yet challenging
reforms, e.g. public sector reform.
Medium
A modest delay in many reforms could be
accommodated without serious repercussions.
Others, in particular those related to budget
implementation, are critical and highly time
sensitive. Reforms associated with fiscal/debt
sustainability remain critical.
High
The new government has stated its intention to
continue with the program. However, a period of
credible policymaking may be needed to convince
the financial markets and investors of the
government’s commitment.
The recovery of investment and growth relies on
public confidence in macro stability. Policy
slippage, especially those concerning a
sustainable fiscal consolidation, would have
severe repercussions.
High
High
Confidence has improved since the start of the
program, but increase in investment and growth has
not yet materialized. Structural constraints that
hinder growth, e.g. crime, low access to finance, are
persistent and take time to resolve.
Without a significant growth payoff, the public
support to the program may falter. Sustainable
medium-term debt reduction also relies crucially
on a growth pickup.
Medium
High
Government successfully returned to local bond
market after three years of market freeze. But
domestic demand for government papers may still
be fragile. PetroCaribe inflows may be affected by
oil price decline. Financing from development
partners is contingent on program implementation.
While the impact is limited by the absence of net
financing needs, refinancing needs are expected
to rise over the coming years. A rise in financing
pressures would compress the scope for fiscal
spending or lead to monetization of the deficit.
High
Medium
With US monetary lift and growth performance
improving, US$ has appreciated significantly and
the trend may continue.
US$ appreciation increases Jamaica’s external
debt burden, creates further dollarization risk,
and increases pressure on domestic interest rate
at a time when growth is still below potential.
Medium
Medium
A sharp slowdown in China and other large EMs
could materialize as a result of weak demand and
corporate/household deleveraging.
External demand of Jamaican exports could be
negatively impacted,, which could affect growth
and sustainable debt reduction.
Medium
Medium
Domestic banks have stopped receiving cash from
money changers (cambios) due to concerns over
potentially losing the correspondent banking
relationships with overseas banks.
Losses of correspondent banking services could
significantly curtails cross-border payments, trade
finance, and remittances, and encourage the
development of underground economy.
Medium
High
Weather related disasters are prevalent.
Zika virus has been found in Jamaica, though the
number of cases are still small.
Droughts and hurricanes can cause severe
damage to infrastructure and agriculture. A Zika
outbreak could undermine tourism growth and
affect labor productivity.
1
The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize
in the view of IMF staff). The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline
(“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a
probability of 30 percent or more). The RAM reflects staff views on the source of risks and overall level of concern as of the time of
discussions with the authorities. Non mutually exclusive risks may interact and materialize jointly.
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Annex II. Growth Drivers and Constraints1
Jamaica’s growth impediments, just like many other countries which have suffered from protracted low
growth, are numerous and severe. While a simple growth accounting exercise points to losses in TFP as
the main cause of growth sluggishness, this result hides many factors, most of them structural. Using
the framework of Hausmann et al, 2005, one can think of the constraints to growth divided into three
broad categories all related to capital and labor investment: (i) is there financing?, (ii) are the returns
appropriate?, and (iii) are the legal/institutional bases in place so that the investor can collect his
return? Findings based on limited data point to weaknesses in all three pillars, with access to financing
a constraint to both human and physical investment.
A. Potential Growth, Investment and Institutions
1.
Jamaica’s potential growth has historically been one of the lowest in the region. Based
on various filters, Jamaica’s current potential growth is below 1½ percent. Although this is higher
than some neighbors’ current potential growth, the persistent low growth rates mean that Jamaica’s
PPP-based GDP per capita is only half of that of Barbados and one-third of that of Bahamas (Figure
A2.1).
2.
Factor accumulation has been the main growth driver. Labor was the main contributor to
growth until 2002, but both capital and labor accumulation have since slowed, driving down GDP
growth. Total factor productivity (TFP) growth has been negative throughout the last 25 years, in
contrast with other tourism-based economies like Costa Rica which saw a turnaround in this period.
TFP captures the efficiency with which labor and capital generate output, which, in turn, depends
on (i) businesses’ ability to innovate, (ii) an economic environment that fosters competition,
(iii) the absence of unnecessary administrative burden, (iv) modern and efficient infrastructure,
and (iv) easy access to finance. Productivity shortfalls in Jamaica reflect a combination of all these
factors.
Given the structural nature of these factors, one should not read the turn-around in these
countries’ TFP as an overnight achievement; most of them involved decades-long reforms. For
instance, Costa Rica’s changes was largely driven by U.S.’s Intel Corporation’s decision to place its
manufacturing plant in the country, which in turn was motivated by Costa Rica’s (i) high levels of
educational attainment, (ii) economic openness, (iii) stable political, social and macroeconomic
environment, (iv) strong doing business environment. This environment was the outcome of
many decades of reforms, including significant investment in educational expenditures (which
are constitutionally mandated to reach 8 percent of GDP).
3.
Total investment in Jamaica is among the lowest of the region, with FDI concentrated
in tourism. Total FDI and domestic investment totaled only 21 percent of GDP in 2014 (Figure A2.1),
significantly behind Bahamas or Costa Rica. Furthermore, nearly all of the FDI in 2014 went into
1 Prepared by Natasha Che and Joyce Wong.
INTERNATIONAL MONETARY FUND 47
JAMAICA
tourism, reflecting not only the dynamism of the sector but potentially also the lack of it in other
sectors such as manufacturing and other services. The literature has found that non-competitive
sectors are usually not made competitive through FDI; instead they must be seen as competitive
before investment flows into them.
4.
Jamaica performs well in most governance indicators albeit with weaknesses in the
transparency of public sector decision-making (Figure A2.1). Jamaica outperforms the rest of the
Caribbean in most governance indicators. However, it lags behind in voice and accountability, which
encompasses important pillars such as freedom of expression and association, transparency in
government policymaking and procurement process, and reliability of public accounts and statistics.
These are especially important for large-scale investors seeking policy continuity and
macroeconomic stability.
B. Diagnostic on the Constraints to Growth
5.
A cross-country growth diagnostic is used to evaluate the relative constraints to
private sector growth in Jamaica. An index was compiled looking at the relative performance of
Jamaica across an extensive list of common constraints facing emerging market economies, including
constraints that impact the cost of investment, the overall returns on investment, and the
appropriability of investment returns. A standard score is calcuated for Jamaica on each of the
growth obstacles, comparing Jamaica to other countries in the world. The score consists of two
components, measuring: 1) to what extent an obstacle is objectively present in Jamaica, and 2) how
relevent an obstacle is for private sector firms. For the first component, the following variables are
used to approximate the severeness of each constraint:
- Access to finance: credit to GDP ratio
- Business licensing and permits: time cost for obtaining construction permits
- Corruption: corruption perception index
- Cost of finance: real lending interest rate
- Crime: homicide rate
- Customs and trade regulations: cost of export
-
Electricity: transmission and distribution losses
- Quality of workforce: population with secondary/tertiary education
-
-
Labor regulations: firing cost
Informality: informal employment ratio
- Tax rates: CIT rate
- Tax system and administration: hours per year spent on paying taxes
- Transportation infrastructure: road density
48
INTERNATIONAL MONETARY FUND
For the second component, firm survey data from IDB/CompeteCaribbean and World Bank on the
percentage of firms identifying each factor as a major obstacle to conducting business is used.
6.
The diagnostic points to five key areas of constraints. The top five obstacles to growth in
Jamaica, when compared to other countries in the world, are: (i) crime, (ii) the cost and availability of
JAMAICA
credit, (iii) tax compliance cost, (iv) electricity
supply and (v) competition from informal
sector. These factors are examined below, in
addition to other supply-side constraints
which hamper competitiveness.
7.
Jamaica’s growth constraints have
been exacerbated by a history of poor
fiscal management. Decades of high public
debt and its servicing costs have hindered
public service provision, including in security,
energy, tax administration, and education.
Interest payments have averaged nearly
10 percent of GDP per year in the last 25 years, which has undercut critical public investment and
fostered structural deficiencies. Furthermore, the risks associated with the fiscal position have also
undermined confidence, keeping the risk premium high.
C. Improving Financial Access and Reducing Financing Cost
8.
Jamaica performs well in bank account coverage, but obstacles remain for their actual
use by households and SMEs (Figure A2.2). A high percentage of households and formal
businesses have bank accounts. Nevertheless, credit represents only 29 percent of GDP (compared to
51 percent in the Caribbean) while deposits total 40 percent of GDP. Only 26 percent of SMEs report
having a loan or a credit line (compared to double in Barbados or Dominican Republic); over 40
percent of SMEs cite credit access as a major constraint, well above the LAC average of 31 percent
and 26 percent in the Dominican Republic. Few SMEs use banks to finance working capital (only 13
percent, compared to nearly a quarter in Trinidad and Tobago), which could be related to the high
levels of collateral requirements, averaging over 200 percent of the loan value. Household access to
credit mirrors the SMEs’ patterns, with nearly 30 percent of households saving at a financial
institution but only 11 percent having credit from one.
INTERNATIONAL MONETARY FUND 49
-2.50-1.50-0.500.501.502.503.50TransportationLabor regulationsBusiness licensing & permitsCorruptionCustoms & trade regulationsEducated workforceCorporate tax ratesInformalityElectricityTax system & administrationFinancial access & costCrimeRanking of Obstacles to Private Sector Growth(Higher = bigger obstacle)*Severity scores are calculated for a range of growth constraints. Each score has two components: 1) how critical an obstacle is for the private sector development, according to Jamaican firms’ self-assessment using data from enterprise surveys; 2) Jamaica’s quality of provision in each constraint categories, with data from the World Development Indicators and WB Doing Business. Both components are computed as standard scores of Jamaica in comparison to other countries. The two components are then added together to arrive at the final severity score for each growth obstacle.
World Average
JAMAICA
9.
Jamaica has very high lending-deposit
interest rate spread compared to its peers.
Simple analysis shows that reducing the lending-
deposit rate spread by 1 percentage point is
associated with up to 0.4 percentage point
increase in GDP growth2. Historically, the lack of
fiscal responsibility and high sovereign borrowing
needs pushed up the lending rate and contributed
to the phenomenon of high spread. The interest
rate spread is further elevated by the high
operating cost of the banking sector, which is
likely the result of a combination of factors,
including (i) high financial sector taxation (CIT and
asset tax amounting to nearly 50 percent of bank
revenue); (ii) high personnel cost due to unionized
wage structure; (iii) high percentage of cash
transactions and underdevelopment of electronic
payment and transaction systems; (iv) insufficient
competition within the banking sector; and (v) high
operating expenditure including in the form of
elevated security costs.
10.
Improving financial inclusion and reducing the cost of credit are essential to promote
growth. These could include:
Corporate bond and equity markets. Jamaica’s corporate bond market is quite deep compared to
the rest of Latin America and Caribbean (LAC); financial market access and efficiency, however,
remain low (Figure A2.2). Expanding the pool of institutional investors, including moving towards
a fully-funded pension system and the introduction of prudential limits to retail repo activity,
could increase demand for corporate instruments. While the tax incentive for listing in the junior
stock market has just been restored—which by itself opens the potential for abuse, unless well
circumscribed—a better practice (done in the UK and Canada) could be to incentivize the end
investor to fund these companies by giving the tax relief to the investor instead of the listing
company.
Bank lending. Private sector lending has been constrained to existing customers largely due to
underdeveloped risk models and credit bureaus to assess creditworthiness, and limited
competition in the banking sector. Moreover, the pass-through of interest rate cuts to the real
economy is low in Jamaica, reflecting weaknesses in the monetary transmission mechanism. This
partly reflects the highly segmented interbank market, as well as weak financial intermediation,
2 The regression controls for initial GDP level, investment rate, inflation rate, and external environment as represented
by US GDP growth.
50
INTERNATIONAL MONETARY FUND
-6-4-20246810-6-4-20246Real GDP growthInterest rate spreadInterest Rate Spread and GDP Growth in Jamaica(1997Q1 -2015Q4)
0123456789
Bank Operating Efficiency (Operating expense as percent of total assets)
JAMAICA
resulting from banks’ historical focus on providing low-risk financing to the public sector, rather
than lending to the private sector. Expanding financial literacy through enhanced information
disclosure requirements on banks’ financial products and improved dispute resolution
mechanisms would allow clients to compare products and force banks to compete on quality and
price of services. Developing a well-functioning interbank market, with higher turnover and
depth, will improve transmission. The recent issuance of banking license to Jamaica’s largest
building society, creating its 3rd largest bank, has helped improve competition. Additional
competition could encourage consumer mobility, and make lending rates more responsive to
policy rates.
MSME finance. High informality levels (estimated at 43 percent of GDP) hamper credit access. To
help lower inequality and informality, and improve financial inclusion, solutions for micro-
insurance, agency banking services, regular saving products, and factoring and leasing should be
considered to help rural and MSME sectors. The high collateral requirements noted earlier,
combined with weaknesses in land titling, limit credit to a small portion of asset owners. The
ongoing expansion of the partial credit guarantee of the Development Bank of Jamaica is a
useful step to improve MSME lending. Expanding the use and reach of e-payment infrastructure,
including by its use by the government to distribute social security payments, would help lower
financial services costs.
D. Fostering Diversification and Competitiveness
11.
Jamaica has experienced limited domestic production diversification and losses in
market share. As a small open economy, Jamaica’s growth is largely export driven due to limited
domestic demand. However, the country’s traditional exports—bauxite, alumina, and sugar,
comprising over 50 percent of total exports—are losing global market share (Figure A2.3), as a result
of more efficient competitors (e.g. Australia with alumina and Brazil with sugar) coming on stream
and loss of preferential trade treatments. Nevertheless, Jamaica’s loss in market share in total goods
and services exports is smaller than that of its traditional industries, pointing to likely gains in service
exports such as tourism and the BPO sector. In the absence of detailed data, however, this is difficult
to assess. In recent years, Jamaica’s exports have drifted towards lower value-added products such as
foods and commodities at the cost of knowledge intensive goods such as transport, electrical
equipment, machinery and chemicals. Only 15 percent of goods exported by Jamaica are in the
knowledge intensive/high value added category, compared to about 30 percent for Bahamas, Costa
Rica and Dominican Republic.
12.
There is scope for Jamaica to upgrade in the current production value chain. Jamaica’s
small size and limited potential to exploit economies of scale imply that the cost of moving into a
large number of new products could be prohibitive; quality upgrading within existing products could
be a more feasible route toward diversification. Producing higher quality varieties of existing
products can build on existing comparative advantages and can boost export revenue potential
through the use of more physical- and human-capital intensive production techniques. Thus, quality
upgrading opportunities in Jamaica could be quite strong in foods, drinks, or specialty agricultural
items. Fostering new comparative advantages and upgrading quality will require improving key areas
INTERNATIONAL MONETARY FUND 51
JAMAICA
such as fostering innovation and knowledge intensive sectors, improving ICT prevalence and usage,
and improving labor market flexibility.
E. Increasing Value-Added and Spillover from the Tourism Sector
13.
Tourism is the largest exporting sector, but growth momentum is relatively weak
(Figure A2.4). Tourism contributes to over 50 percent of total exports in Jamaica. And the country’s
reliance on tourism has increased over time, given the subdued performance in other export sectors.
However, growth momentum of tourism is weak relative to the sector’s overall performance around
the world. Data shows that tourism offerings in Jamaica is not cheap compared to other tourism-
intensive small countries, likely due to high energy cost and lack of exchange rate competitiveness.
On the other hand, expenditure per tourist in Jamaica is low compared to peers, indicating a lack of
diversified tourism products and services.
14.
Increasing the linkage between tourism and the rest of the economy is essential. A
vector autoregressive model associating GDP growth on tourist arrival shows that the impact of
tourist arrival on growth is small in Jamaica compared to other tourism-intensive countries. This is
likely related to Jamaica’s enclaved tourism model—
tourists mostly stay in all-inclusive resorts that have
little linkage with the rest of the economy, partly due
to safety concerns. In addition, the sector imports
most of its non-labor inputs. To increase the sector’s
contribution to the economy, better coordination by
local producers is needed to reorient the sector’s
supply chain towards domestic goods and services. To
diversify from the all-inclusive operating model, it is
essential to reduce crime rate and encourage the
development of domestic SMEs.
F. Other Supply-Side Constraints
15.
High crime rate severely constrains private sector growth, especially tourism. Jamaica
has one of the highest homicide rates in the world. Other crimes such as theft, robbery and gang
activities are also prevalent. Nearly 50 percent of firms
identify crime as a major cost of doing business. The
IDB estimates that Jamaica’s growth could have been
1.6 percent higher if it had the same homicide rate as
the global average between 1995 and 2011.
Moreover, total costs of crime are over 6 percent of
businesses’ annual sales, once security costs and
direct losses are accounted for. To effectively combat
crime, World Bank and the CARICOM Regional
Taskforce on Crime and Security suggest that a
52
INTERNATIONAL MONETARY FUND
0123456
Tourist Arrival Multiplier on GDP(Percentage change in GDP corresponding to 1 percent change in inbound tourist arrival; 1995-2013)
05101520253035404550
Homicide Rates Among Small States(Homicides per 100k population)
JAMAICA
national plan for crime reduction is needed to ensure multi-sectoral collaboration. In addition, better
data gathering and analysis should help identify geographical and demographic patterns of crime for
improved interventions. Crime prevention elements should be integrated into social programs in
health and education, especially among the youth population. The criminal justice system should
also be reformed to improve performance measurement and promote institutional accountability.
16.
Survey indicators point to regulatory, educational and infrastructure weaknesses. While
Jamaica ranks well in starting a business and getting credit, these indicators reflect intensive margin
improvements while a significant portion of the population still remains outside of those markets.
Regulatory and legal weaknesses around contract enforcement, property registration, and paying
taxes increase red tape and the hidden costs of doing business. Labor and goods markets are
inefficient, driven by restrictive product market regulations and high separation costs. Labor mobility
from the non-tradable to the tradable sector is also constrained by lack of training.
17.
Improving energy and transport infrastructure can reduce the cost of doing business in
Jamaica. Like other Caribbean countries, Jamaica’s power system suffers from high dependency on
imported fossil fuels.3 The good news is that Jamaica has already embarked on moving from costly
oil to natural gas-based power generation. For example, the Jamaica Public Services’ new 190MW
gas-powered power plant is on track to be operational by mid-2018, which should help sustainably
lower electricity costs—especially if the current low global oil price is transitory—and help diversify
Jamaica’s energy generation matrix. Reforms to replace old and inefficient power plants,
transmission/distribution lines, and improving metering would also help cut losses and costs. The IDB
estimates that for 2018-2023, US$860 million investments are needed in diversifying energy sources
and improving efficiency. Given limited fiscal space, strengthening public-private partnerships in
energy diversification and power sector regulatory framework are important to mobilize private
sector resources for energy investments. On infrastructure, the concession of Kingston Container
Terminal and privatizing the international airport in Kingston will help modernize both structures and
reduce their operational costs. Improving road connectivity and mass transit would promote linkages
between tourism and the real economy.
18.
A stunted private sector has lead to brain drain and fostered a large informal sector.
The educational attainment of Jamaican immigrants in the U.S. is much higher than those in the
country, pointing to severe brain drain due to lack of economic opportunities. This, in combination
with a high tax burden and labor market rigidities in such forms as high minimum wage and
complex/costly dispute resolution framework, has in turn led to a large informal sector where
activities are concentrated in low-productivity, labor-intensive areas such as small retail and
agriculture. Improving labor market flexibility through training programs to facilitate transition out of
agriculture and by tackling high separation costs, improving incentives to enter the formal sector
(e.g. through a strong safety net) and improving regulatory/taxation hurdles would help foster
3 See “Caribbean Energy: Macro-Related Challenges, IMF Working Paper No. 16/53.
INTERNATIONAL MONETARY FUND 53
JAMAICA
formality and generate a virtuous cycle in the lower parts of the income distribution which would
also reduce brain drain and crime.
19.
A long history of high debt service combined with a bloated and inefficient public
sector has weakened public service delivery. The high levels of interest and wage expenditures
have significantly crowded out productive capital spending. This, combined with weak execution
capacity over even the budgeted amounts each year,
has resulted in weak infrastructure and
telecommunications and electricity matrices. Some
steps have also been taken to modernize an archaic
tax system, but efforts should continue towards a
broad-based, transparent system which reduces the
reliance on distortive taxes (e.g. direct and turnover
taxes) and eliminates almost all ad-hoc and sectoral
exemptions. Modern taxes such as property taxes,
capital gains tax and consumption taxes should be
implemented or broadened to fill the void, with the
added advantage that these taxes incentivize savings
and are deemed to be more growth friendly. As reforms to raise public sector efficiency come on
stream and the private sector becomes more vibrant, the newly found fiscal space should target
much needed improvements in public sector provisions.
G. Emerging Transformational Investments
20.
Strategic investment projects can help transform the economy. These investment
projects help close the gap in crucial infrastructure and/or provide the foundation for the
development of industries in which Jamaica potentially has a comparative advantage. With only
limited fiscal space, private sector participation in these projects should be encouraged and
facilitated through the use of privatization and different types of private-public partnership.
The completion of Phase II of the Highway 2000 project (the North-South Highway), is an
example of such partnership with China Harbour Engineering Company (CHEC). The highway
reduces travel time between Kingston, the industrial and logistics center of Jamaica, and the
North Coast where the tourism economy is concentrated, facilitating positive spillover of tourism
into the domestic economy.
Similarly, modernizing and expanding the container terminal in the Port of Kingston (KCT), with
financing from private banks and the IDB, will boost the competitiveness of the Port, help
establish Jamaica as a regional transshipment hub—particularly in light of potential competition
from Cuba’s Mariel port—and attract FDI in the logistics industry and related sectors.
The Norman Manley Airport in Kingston is also being offered to private concessionaires for
modernization and expansion, and improvements in the operational efficiency. The privatization
54
INTERNATIONAL MONETARY FUND
0510152025
Composition of Public Expenditure(In percent of GDP, 2014)
Wages
Interest
Capital
JAMAICA
and expansion of the NMIA is expected to help increase Jamaica’s competitiveness as a regional
logistics hub and boost the investment attractiveness of the Kingston area.
21.
Private sector dynamism supported by an improved business environment and
investments in physical and human capital can generate growth. Jamaica offers opportunities to
the private sector in various growth sectors like BPO, tourism, manufacturing and agri-business,
Jamaican specialty goods, creative industries, creating a Kingston waterfront, housing development,
etc. The proximity to large export markets in North America, combined with the English-language
advantage, puts Jamaica in a unique position to leverage its geography and culture to ignite private
investment. The virtuous cycle of raising physical and human capital, which in turn increase
productivity, attract private investment, generate job opportunities, and eventually higher growth is
an achievable goal, requiring dedicated effort to sustain macroeconomic stability and deep structural
reforms.
INTERNATIONAL MONETARY FUND 55
JAMAICA
Figure A2.1. Growth, Investment and Institutions
56
INTERNATIONAL MONETARY FUND
-1.00-0.500.000.501.001.502.001995199619971998199920002001200220032004200520062007200820092010201120122013201420152016Potential growth (in percent)
multi-variate
Hodrick-Prescott
Butterworth
0.01.02.03.04.05.0200020022004200620082010201220142016
BHS
BRB
JAMPotential growth (MVF)
-551525354555BHSKNALCAVCTMUSCRIJAMDOMFDI and Domestic Investment(% GDP, 2014)
Domestic Investment
FDI
050100Voice and AccountabilityPolitical Stability and Abscenseof ViolenceGovernment EffectivenessRegulatory QualityRule of LawControl of CorruptionGovernance Indicators (Percentile)
LA5
Caribbean
Jamaica
-4-3-2-101234PANTTODOMCRINICBRBJAM
1981–2002¹
2003-13Jamaica and theRegion: TFP Growth(In percent)
-2.00-1.000.001.002.003.004.005.006.007.008.00
Capital
Labor
TFP
Real GDP growthCaribbean: Contribution toReal GDP Growth(Annual average, percent)
1990-2002
2003-2012
Figure A2.2. Financial Inclusion and Development
JAMAICA
INTERNATIONAL MONETARY FUND 57
0.000.050.100.150.200.250.300.350.40BRBPANJAMBHSCHLSLVURYCOLBRAPERMEXTTOVENBOLARGDOMCRIGTMHNDECUPRYNICLAC: Financial Markets Development Index(2013)
Depth
Access
EfficiencySource: Based on index developed in IMF WP/16/81
00.20.40.60.811.2Jamaica*advancedeconomiesemerging marketsLICsInterest rate passthrough (cummulative over 3 months)
from policy rate to money market rate
from money market rate to lending rate* 2005 -2015
02040608010012005101520200320042005200620072008200920102011201220132014% GDPPercentInterest Rate Spreads and Credit to Private Sector
Credit JAM (RHS)
Credit BHS (RHS)
Spread JAM
Spreads BHS
010203040506070BHSGUYGRDDOMTTOVCTSURKNABRBATGJAMLCADMABLZ
LAC averageCaribbean: Access to Credit as Major Constraint(% SMEs that responded "yes")Sources: Segoe UI -Size 18
202530354045505560VCTBRBDOMTTOATGKNAGRDGUYSURBLZBHSDMAJAMLCA
LAC averageCaribbean: Firms with a Loan or Credit Line(% SMEs)Sources: Segoe UI -Size 18
0102030405060708090 Main mode ofwithdrawal: ATMAccount at afinancial institutionDebit card Saved at a financialinstitution Borrowed from afinancial institutionHousehold Use of Financial Services(In percent)
EM Asia
LAC
Non-Asia/LAC EM
JAM
JAMAICA
Jamaican exports remains reliant on commodities…
… despite severe loss in market shares in recent years.
Figure A2.3. Export Composition and Market Share
Source: MIT Observatory of Economic Complexity
Exports have shifted to lower value-added goods (food)…
… and the share of knowledge intensive exports is low.
Overall market shares have been declining…...
… and innovation lags behind.
58
INTERNATIONAL MONETARY FUND
0%2%4%6%8%10%12%199520052014Jamaica's market share in total world export
Bauxite
Alumina
Sugar
0%10%20%30%40%50%60%70%80%90%100%19941995199619971998199920002001200220032004200520062007200820092010201120122013Composition of Jamaican Goods Exports(% total exports)
Food
Knowledge Intensive
Textiles
Other
0%5%10%15%20%25%30%35%40%BHSCRIDOMVCTBRBJAMKnowledge Intensive Exports(% total exports)
-4-202468102001-20042005-20082009-2013
Change in the market share
World trade growth
Total export growthJamaica: Goods and Services Export Growth, Contribution of Global Growth and Changes in the Market Share (percent)Sources: WEO and IMF staff estimates.
032.565ICT PrevalenceKnowledge workersKnowledge creationCreative goods andservicesEase of RedundancyDismissalICT useEmployment inknowledge-intensiveservicesGlobal Innovation Index 2016
(cid:160)Jamaica
(cid:160)Costa Rica
Tourism has a higher share in total exports compared to
…but the growth performance of the sector is relatively
Figure A2.4. Tourism Development
other small countries….
weak.
JAMAICA
Although tourism products are not cheap compared to
peers…
…expenditure per tourist is quite low.
INTERNATIONAL MONETARY FUND 59
0102030405060Small statesCaribbean smallstatesPacific island smallstatesJamaicaTourism receipts (as share of total exports, 2014)
012345678910WorldLatin America& CaribbeanOECDSmall statesJamaicaAnnual growth in tourism receipts (in percent, 2004-2014)
0.0020.0040.0060.0080.00100.00120.00
"Week at the Beach" Index(3-star hotel average, Bahamas=100)1/Room rate: see"http://www.travelocity.com/", average room rate is from Jan 9-Jan1620162/Taxi, Meals, Water, Beer,Coffee:see"http://www.numbeo.com/cost-of-living/"an"http://www.worldcabfares.com/index.php",access date: Dec 3, 20153/Total Cost without Tax: 7 * (3 star hotel) + 2 * (average taxi ride from main international airport to capital city) + 7 * (1 inexpensive meal + 2 mid-range meals) + 7 * 2 liters water + 7 * 0.5 liter beer + 7 * regular coffee
0500100015002000250030003500
Expenditure per tourist (in USD, 2014)
JAMAICA
Figure A2.5. Competitiveness and Supply-Side Constraints
Some bright spots in Doing Business environment…
… are clouded by a weak competitiveness indicators…
Brain drain has lowered the skills in the labor force…
Energy generation matrix remains dependent on oil.
… helping foster a large and unproductive informality...
… as private activity is further hindered by crime
60
INTERNATIONAL MONETARY FUND
1189Starting a Business (9)Dealing withConstruction Permits(72)Getting Electricity(80)Registering Property(122)Getting Credit (7)Protecting MinorityInvestors (57)Paying Taxes (146)Trading acorssBorders (146)Enforcing Contracts(107)Resolving Insolvency(35)Doing Business Environment-Jamaica Rank(1-best; 189 -worst)
2090OverallInfrastructureTelecomm +ElectricityTechnologicalreadinessEfficiency of goodsmarketHigher educationand trainingBusinesssophisticationLabor marketefficiencyWEF Global Competitiveness Rankings(1 = best; 140 = worst)
Jamaica
Mauritius
Costa Rica
01020304050600102030405060
Informal Sector and Causal Drivers(data from early 2000s)
Inflation
Agriculture
Labor Rigidity
Tax Burden
Total Informal (% GDP)
0%20%40%60%80%100%Antiguaand BarbudaDominicaGrenadaSt. Kittsand NevisSt. LuciaSt. Vincentand the Gren.BahamasBarbadosBelizeJamaicaSurinameGuyanaTrinidadand TobagoLAC Average
Bio mass
Hydro electric
Coal
Natural Gas
Diesel/Oil
Wind, Solar & OtherInstalled Generation Capacity in Caribbean Countries(In Percent of Total capacity)Source:World Bank, IDB and IMF staff calculations
01020304050607080< Grade 12Grade 12College or moreEducational Attainment(US data for 2012, Jamaica data for 2011)
Women (living in US)
Men (living in US)
Women (living in JAM)
Men (living in JAM)
00.511.522.530246810GUYBHSJAMTTOBRBPercentage Points% Annual SalesCosts of Crime
Expenses on security
Losses due to crime
Counterfactual GDP growth (RHS)
Annex III. 2016 External Sector Assessment
A. Exchange Rate Assessment
1.
In applying EBA-lite methodologies on exchange rate valuation, special consideration
JAMAICA
is given to external sustainability, given
Jamaica’s large NFA imbalances. Convergence to
a more sustainable NFA position (assumed to be -
70 percent of GDP) in a period of no more than 15
years would require a somewhat more depreciated
real effective exchange rate. Similarly, the
equilibrium real exchange rate model points to an
overvaluation, while the current account model
points to modest undervaluation. Given these
mixed findings, staff’s view is that the exchange rate
is broadly in line with fundamentals. That said,
given the importance of NFA sustainability, the balance of risks may be toward modest
overvaluation.
B. Composition of Capital Flows and of the Net International Investment
Position (IIP)
2. The significant narrowing of the current account deficit has allowed for continued
accumulation of international reserves, despite reduced financing from the financial and
capital accounts. The current account deficit narrowed sharply from US$1,128 million in 2014 to
US$326 million in 2015, largely as a result of lower oil prices. Over the past two years, foreign direct
investment (FDI) has increased significantly: net FDI amounted to US$760 million in 2015, up from
US$511 million in 2014. By contrast, portfolio flows, which have historically been much more volatile
than FDI, were negative at US$225 in 2015 and a positive contribution of US$775 in 2014. The
issuance of two sovereign bonds in the international capital markets in July of 2015 to finance the
PetroCaribe debt buyback operation led to a negative contribution of net official investment flows of
INTERNATIONAL MONETARY FUND 61
19.37-11.3-12.114.43.5-7.6-5.16.025.517.0-15-10-5051015202530CGEREREER2015CGERMB2015CGERES 2015PPP2015EBA-liteCAB2015EBA-liteCAB2016EBA-liteES 2016EBA-liteES 2016(targetyear2034)EBA-liteES 2016(targetyear2024)EBA-liteEREER2016PercentReal Effective Exchange Rate Appreciation (-) or Depreciation (+) Needed to Close the Gap Between the Underlying and Norm CAB
2016 REER2015 REER2014 REEROver (+)/Under (-)Over (+)/Under (-)Over (+)/Under (-)NormUnderlyingElasticityValuationValuationValuationCGER-type methodologiesMacroeconomic balance -5.5-3.5-0.18N.A.-11.53.1External sustainability-5.7-3.5-0.18N.A.-12.13.0Equilibrium real exchange rateN.A.N.A.N.A.N.A.19.415.1Purchasing power parityN.A.N.A.N.A.N.A.14.4Average REER Over(+)/Under (-)N.A.2.57.1EBA-lite methodologyCurrent account balance-4.7-3.3-0.18-7.63.5N.A.Equilibrium real exchange rate4.7*4.5*-0.1817.0N.A.N.A.External sustainability-3.7-2.8-0.18-5.1N.A.N.A.External sustainability (target year 2034)-1.8-2.8-0.186.0N.A.N.A.External sustainability (target year 2024)1.7-2.8-0.1825.5N.A.N.A.Source: Fund staff estimates.Current Account/GDPResults of the Real Effective Exchange Rate Assessment for Jamaica Using the EBA-lite and CGER Methodologies
JAMAICA
US$1,202 million in 2015, which contrasts with a positive contribution of US$821 in 2014. Thus,
despite the lower contribution of the capital and financial account to the current account financing,
international reserves increased by US$953 million in 2014 and 435 million in 2015.
3.
Jamaica’s net international investment position (IIP) has been relatively constant over
the past year, although it remains very high. Jamaica has a large negative IIP, which has grown
over time both in absolute terms and as a share of GDP. At end-2015, the net IIP registered a deficit
of US$22 billion, equivalent to -150.0 percent of GDP. This net IIP was largely unchanged from the
deficit at end-2014 (US$22 billion), even if as a share of GDP it deteriorated as a result of the
depreciation of the Jamaican dollar vis-a-vis the US dollar, which implied a lower level of GDP.
4. The relatively high share of foreign direct investment in total liabilities, together with
the longer maturity of the majority of other liabilities, suggests a smaller need to hold
reserves for precautionary purposes. The maturity profile of the other investment component of
liabilities in end-2015 suggests that the majority of liabilities (80 percent) correspond to long-term
loans; liabilities maturing in less than one year account for the remaining 20 percent. That said, the
PetroCaribe debt buyback operation reduced the average maturity of liabilities and resulted in the
bunching of repayments in some years.
C. Reserve Adequacy
5.
Jamaica’s international reserves are below the suggested range by the metric proposed
in the IMF’s Board paper “Assessing Reserve
Adequacy” (2011) using the updated weight for
the ‘Other liabilities’ component. Whereas the
ARA metric suggests that reserves should be
between 100 and 150 percent of the ARA metric,
using the updated weight for the ‘Other liabilities’
component Jamaica’s level of international reserves
at end-2015 were about 77 percent, and are
projected to reach about 86 percent by end 2017.
Using the old weight, at end-2015 reserves were
about 94 percent of the ARA metric and are
projected to reach about 104 percent by end 2017.
62
INTERNATIONAL MONETARY FUND
86%104%0%20%40%60%80%100%120%140%160%180%200520062007200820092010201120122013201420152016Gross International Reserves(Percent of ARA Metric)
New weights (20 percent to Other liabilities)
Old weights (15 percent to Other liabilities)
JAMAICA
D. Wage and Non-Price Competitiveness Indicators
6. Wage comparisons provide an additional
measure of international competitiveness, but are
significantly hampered by data availability. In the
absence of data on average manufacturing wages, a
comparison of minimum wages among a group of
countries in Central America and the Caribbean shows
that Jamaica’s minimum wage is not high in absolute
U.S. dollar terms; it is, however, relatively high as a share
of GDP per capita.
7. Non-price competitiveness indicators have improved in recent years including the
World Bank’s 2015 Ease of Doing Business improving from 71 to 64 (among 189 economies).
In terms of the distance to frontier (DTF), it narrowed the distance from 64.7 in 2015 to 67.3 in 2016.1
8. Among the 11 areas of competitiveness considered, however, progress was uneven.
While the DTF ranking rose significantly in five areas (resolving insolvency, getting credit, starting a
business, paying taxes, and dealing with construction permits), it remained nearly constant in 4 areas
and declined in one (getting electricity). The decline in the average electricity price from US¢41.6 in
2014 to US¢28 per kWh in 2015, was more than offset by declines in the quality and reliability of
service.
9. Despite improvements, in terms of levels, Jamaica is still far from the frontier in five
areas (registering property, protecting minority investors, paying taxes, trading across borders, and
enforcing contracts). Moreover, it lags behind its regional peers or relevant comparator countries in
paying taxes and trading across borders.
Ease of Doing Business 2016
(Distance to Frontier)
1 The distance to frontier score is indicated on a scale from 0 to 100, where 0 represents the worst performance and
100 the frontier.
INTERNATIONAL MONETARY FUND 63
01,0002,0003,0004,0005,0006,0007,0008,0009,00010,0000%10%20%30%40%50%60%70%JAMCRIBRBBHSTTODOMMinimum Wage(Annual USD and as % of GDP per capita)
% GDP per capita
Nominal USD (RHS)
JAMAICA
10. The latest World Economic Forum’s Global Competitiveness Report shows that Jamaica
ranked 86 among 140 economies. It also shows that Jamaica stagnated in terms of its value of the
Global Competitiveness Index (GCI).
11. Jamaica showed progress in five of the 12 pillars of competitiveness considered by the
GCI–i.e., macroeconomic environment, innovation, institutions, financial market development,
and health and primary education. It remained nearly constant in three–infrastructure, goods
market efficiency, and labor market
efficiency; it declined in four others–higher
education and training, technological
readiness, market size, and business
sophistication. The improvement in the GCI
for 2015-2016 in the macroeconomic
environment pillar was the result of higher
savings, lower inflation, and higher credit
rating in 2015 compared with 2014. In
terms of the levels of the GCI, Jamaica does
poorly compare with some of its regional
peers in macroeconomic environment and
market size.
64
INTERNATIONAL MONETARY FUND
0102030405060708090100Starting a BusinessDealing with ConstructionPermitsGetting ElectricityRegistering PropertyGetting CreditProtecting MinorityInvestorsPaying TaxesTrading Across BordersEnforcing ContractsResolving Insolvency
Cyprus
Jamaica
Mauritius
Panama
Seychelles
Trinidad and Tobago
012345671st pillar: Institutions2nd pillar:Infrastructure3rd pillar:Macroeconomic…4th pillar: Health andprimary education5th pillar: Highereducation and training6th pillar: Goodsmarket efficiency7th pillar: Labor marketefficiency8th pillar: Financialmarket development9th pillar:Technological…10th pillar: Market size11th pillar: Businesssophistication12th pillar: InnovationGlobal Competitiveness Index 2015-2016
Costa Rica
Dominican Republic
Honduras
Jamaica
Average GCR
0102030405060708090100Starting a BusinessDealing with ConstructionPermitsGetting ElectricityRegistering PropertyGetting CreditProtecting MinorityInvestorsPaying TaxesTrading Across BordersEnforcing ContractsResolving Insolvency
Bahamas, The
Barbados
Costa Rica
Dominican Republic
Honduras
Jamaica
JAMAICA
Annex IV. Debt Sustainability Analysis
Under the current baseline scenario, Jamaica’s public debt remains high but is on a downward trend
underpinned by sustained fiscal consolidation. The projected decline in public debt is vulnerable to risks
from key macro-fiscal shocks, contingent liabilities, and natural disasters.1
A. Public Debt Sustainability Analysis
1.
Jamaica’s public debt has declined steadily over the past few years. Between
FY2012/2013 and FY2015/16, public debt has fallen by about 11 percent of GDP to 129 percent of
GDP, and is now projected to further decline to about 128 percent of GDP at end of FY2016/17.
Under the current baseline projections, public debt would be reduced to 102 percent of GDP at end-
March 2020, still higher than the 96 percent marker set at the start of the program.
2.
The steady decline in Jamaica’s public debt has been underpinned by strong fiscal
consolidation under the IMF-supported program and the buyback of the PetroCaribe debt in
July 2015.2 Jamaica’s central government operations posted a primary surplus of 7½ percent of GDP
over FY2013/14 and FY2014/15. The primary surplus target was lowered slightly by ¼ and ½ percent
of GDP for FY2015/16 and FY2016/17, respectively, to accommodate growth-enhancing spending,
but remains at a level compatible with public debt reduction (7 percent of GDP per year from
FY2016/17 onwards). Fiscal consolidation has contributed to the reduction in public debt; the decline
in public debt in FY2015/16 also reflects the gains from the buyback of the PetroCaribe debt in July
2015, which resulted in an upfront reduction of public debt by 10 percent of GDP.
3.
Nevertheless, public debt sustainability risks are significant, particularly from key
macro-fiscal and contingent liability shocks.
The dynamics of debt reduction hinge on sustained fiscal consolidation. The reduction in
public debt since 2013 has been supported by fiscal consolidation and the recent buyback of the
PetroCaribe debt. While slippages in fiscal consolidation do not seem to have a significant direct
impact on debt trajectory (Figure A4.5),3 its indirect effects on public debt can be significant. For
example, fiscal complacency could undermine policy credibility and investor confidence, causing
a spike in sovereign bond yields, which could lead to unpleasant public debt dynamics.
Maintaining strong fiscal stance is critical, in line with the government’s commitment to the
program objective to bring public debt down to 96 percent of GDP by 2019/20 and to 60 percent
of GDP by 2025/26, as entrenched in the Fiscal Responsibility Law.
1 The main assumptions underpinning the DSA are presented in the lower panel of Figure 4 and are based on the
medium-term macroeconomic framework under the extended arrangement under the EFF.
2 See Box 2 in IMF Country Report No. 15/270.
3 The scenario describes a cumulative relaxation of the primary balance by 4.2 percentage points of GDP, spread over
FY2017/18–FY2021/22 (Figure A4.5, lower panel).
INTERNATIONAL MONETARY FUND 65
JAMAICA
Economic slack could derail the debt profile. In a scenario with 1.7 percentage points lower
real GDP growth in FY2017/18 and FY2018/19, corresponding to one standard deviation of
growth over the past 10 years, the primary balance would deteriorate by 0.4 and 0.8 percent in
these two years, respectively. Public debt would rise to 101 percent of GDP by end-March 2021,
about 6 percent above the current projection.
Debt profile is also vulnerable to a contingent liabilities shock. A financial sector contingent
liability stress test suggests that public debt could rise to 104 percent at end-March 2021, if it is
subject to a one-time increase in non-interest expenditures equivalent to 10 percent of the
banking sector’s assets.4 It is therefore important to implement reforms to strengthen financial
sector stability.
Overall risks to the debt outlook remain elevated as indicated by both the symmetric and
asymmetric fan charts (Figure A4.1). Based on the joint historical distribution of the main
macroeconomic aggregates (real GDP growth, interest rate, nominal exchange rate, and primary
balance), there is a 25 percent probability that public debt would exceed 100 percent of GDP at
end-March 2021, even absent a contingent liability shock.
Although the heat map shows a somewhat worse market perception since the last DSA,
recent developments point to improvements. A large part of the increase in Jamaica’s EMBIG
yield since the last DSA was in August 2015 when the yield rose by 84 bps, after the international
bond placement of US$2bn; otherwise, Jamaica’s yields have broadly moved in line with the EM
average. Moreover, recent developments point to strengthening market confidence: (1) there
have been two credit ratings upgrades in the last 12 months, including in February by Fitch,
(2) recent surveys which point to a 15 year high in confidence levels and (3) a downward path in
yields since the beginning of 2016.
4.
Jamaica’s debt position also remains vulnerable to natural disasters.
Calibration of the shock. Given Jamaica’s high exposure to natural disasters,5 this test assumes
that such a shock causes 4 percent of GDP in damages, twice the conditional average cost of
natural disasters in Jamaica over the past two decades.6 The calibrated shock is a conservative
estimate, given that the largest (hurricane Gilbert in 1988) and second largest natural disaster
(hurricane Ivan in 2004) caused damages of 65 percent and 6.6 percent of GDP, respectively.
4 It is assumed that the financial stress would also trigger GDP losses in the magnitude of the real growth shock
described above.
5Jamaica ranks 101 out of 206 countries worldwide in the frequency of disasters (frequency of disasters per 1000 km2),
1990-2014 (Source: Growth and Resilience Initiative: Stylized Facts About Natural Disasters)
6Jamaica had 9 major hurricanes and storms over the past two decades (estimated damages in percent of GDP): 1988
hurricane Gilbert (65), 2002 flood (0.6), 2004 hurricane Ivan (6.6), 2005 hurricane Dennis and Emily (1), 2005 hurricane
Wilma (0.6), 2007 hurricane Dean (2.9), 2008 storm Gustav (1.8), 2010 storm Nicole (1.9), 2012 hurricane Sandy (0.8).
66
INTERNATIONAL MONETARY FUND
JAMAICA
Parametrization of the scenario. With a disaster of such magnitude, real growth would typically
be about 2 percentage points lower in the year of the disaster, and accelerate by 0.5 percentage
points the year after the disaster (boosted by low base and reconstruction). Based on the past
distribution of damages between the public and the private sectors, it is assumed that the
government would cover ¾ of the damages, corresponding to 3 percent of GDP in this scenario.
The associated fiscal expenditure is assumed to be spread over 3 years: 1.5 percent of GDP in the
first year, and 1 and ½ percent of GDP in next two years respectively.
Impact on public debt. The shock would have a material impact on public debt, shifting the
entire public debt trajectory up by around 5 percent of GDP above the baseline. Thus, public
debt would reach 99.6 percent of GDP at end-March 2021. In light of frequent natural disasters, it
is important to build sizable and lasting fiscal buffers to cover the fiscal cost of future disasters.
5.
The reopening of the domestic bond market could mitigate financing risks, including
rollover risks of a still high debt burden. Capitalizing on the liquidity available from the
redemption of a J$62 billion (about 4 percent of GDP) government bond, the domestic bond market
re-opened in February (after being frozen for almost three years), through the issuance by the GoJ of
J$15 billion bonds at various maturities to meet the demand for new government assets. Concerted
efforts to further develop local currency bond market offer the government an additional funding
source to meet its financing needs and to address the FX risk of the debt portfolio. The risk profile of
public debt would indeed benefit from reduced reliance on foreign currency (see ¶6).
B. External Debt Sustainability Analysis
6.
The recent shift towards external financing sources has increased public debt’s
exposure to exchange rate risk. Jamaica tapped the international capital markets while the
domestic bond market was frozen between 2013 and 2015, shifting the composition of public debt
towards foreign currency (Figure A4.4). External debt is now estimated at around 70 percent of GDP
in FY2015/16, about 10 percentage points of GDP higher than in FY2013/14. The foreign-currency
denominated debt accounts for about 63 percent of total debt. As illustrated in Figure A4.5, public
debt is most vulnerable to exchange rate volatility. The recent reactivation of the domestic bond
market is a welcome step in this direction, as it provides scope for shifting the financing sources
towards domestic ones.
7.
There are risks related to PetroCaribe financing with the expectation of long-lasting
low oil prices. Given that oil prices are projected to recover modestly over the medium term, the
gross inflows at highly concessional terms from PDVSA are expected to be continuously low.
Securing alternative low-cost financing where possible (e.g., from IFIs) would mitigate risks to public
debt dynamics.
INTERNATIONAL MONETARY FUND 67
JAMAICA
68
INTERNATIONAL MONETARY FUND
JamaicaSource: Fund staff calculations.Figure A4.1. Jamaica Public DSA Risk Assessment1/ The cell is highlighted in green if debt burden benchmark of 70% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.Real Interest Rate ShockExternal Financing RequirementsReal GDP Growth ShockHeat Map 6/Upper early warningEvolution of Predictive Densities of Gross Nominal Public Debt(in percent of GDP)Debt profile 3/Lower early warning(Indicators vis-à-vis risk assessment benchmarks, in 2015) Debt Profile VulnerabilitiesGross financing needs 2/Market PerceptionDebt level 1/Real GDP Growth ShockPrimary Balance ShockChange in the Share of Short-Term DebtForeign Currency DebtPublic Debt Held by Non-ResidentsPrimary Balance ShockReal Interest Rate ShockExchange Rate ShockContingent Liability ShockExchange Rate ShockContingent Liability shock6/ The red-colored cells on the heat map under "gross financing needs" (upper panel chart, second row) do not account for the fact that the 2015 gross financing needs include the amount of the buyback operation which has already taken place.5/ External financing requirement is defined as the sum of current account deficit, amortization of medium and long-term total external debt, and short-term total external debt at the end of previous period.4/ EMBIG, an average over the last 3 months, 02-Jan-16 through 01-Apr-16.2/ The cell is highlighted in green if gross financing needs benchmark of 15% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term debt; 15 and 45 percent for the public debt held by non-residents; and 20 and 60 percent for the share of foreign-currency denominated debt.3/ The cell is highlighted in green if country value is less than the lower risk-assessment benchmark, red if country value exceeds the upper risk-assessment benchmark, yellow if country value is between the lower and upper risk-assessment benchmarks. If data are unavailable or indicator is not relevant, cell is white. Lower and upper risk-assessment benchmarks are:
206063%12
200600700 bp12
51513%12
0.51-0.2%12EMBIGExternal Financing RequirementAnnual Change in Short-Term Public DebtPublic Debt in Foreign Currency(in basis points) 4/(in percent of GDP) 5/(in percent of total)(in percent of total)
02040608010012014016020142015201620172018201920202021
10th-25th
25th-75th
75th-90thPercentiles:
BaselineSymmetric Distribution
02040608010012014016020142015201620172018201920202021Restricted (Asymmetric) Distributionno restriction on the growth rate shockno restriction on the interest rate shock0 is the max positive pb shock (percent GDP)no restriction on the exchange rate shockRestrictions on upside shocks:
154541%12Public Debt Held by Non-Residents(in percent of total)
I
N
T
E
R
N
A
T
I
O
N
A
L
M
O
N
E
T
A
R
Y
F
U
N
D
6
9
J
A
M
A
C
A
I
Source: Fund staff calculations.1/ Plotted distribution includes program countries, percentile rank refers to all countries.2/ Projections made in the spring WEO vintage of the preceding year.3/ Not applicable for Jamaica, as it meets neither the positive output gap criterion nor the private credit growth criterion.4/ Data cover annual obervations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 percent of GDP. Percent of sample on vertical axis.(cid:10)Figure A4.2. Jamaica Public DSA - Realism of Baseline AssumptionsForecast Track Record, versus program countriesBoom-Bust Analysis 3/Assessing the Realism of Projected Fiscal Adjustment
-12-10-8-6-4-20246200620072008200920102011201220132014Year 2/Real GDP Growth
Distribution of forecast errors:
Median
Jamaica forecast error-1.1420%Has a percentile rank of:Jamaica median forecast error, 2006-2014:Distribution of forecast errors: 1/(in percent, actual-projection)
-6-4-20246200620072008200920102011201220132014Year 2/Primary Balance
Distribution of forecast errors:
Median
Jamaica forecast error0.0667%Has a percentile rank of:Jamaica median forecast error, 2006-2014:Distribution of forecast errors: 1/(in percent of GDP, actual-projection)
-6-4-20246810200620072008200920102011201220132014Year 2/Inflation (Deflator)
Distribution of forecast errors:
Median
Jamaica forecast error1.1359%Has a percentile rank of:Jamaica median forecast error, 2006-2014:Distribution of forecast errors: 1/(in percent, actual-projection)
pessimistic
optimistic
-6-4-202468t-5t-4t-3t-2t-1tt+1t+2t+3t+4t+5Real GDP growth
Jamaica(in percent)Not applicable for Jamaica
02468101214Less-4-3-2-1012345678
Distribution 4/
Jamaica3-YearAdjustment in Cyclically-Adjusted Primary Balance (CAPB)(Percent of GDP)More3-year CAPBadjustment greater than 3 percent of GDP in approx. top quartilehas a percentile rank of61%
024681012Less-4-3-2-1012345678
Distribution 4/
Jamaica3-YearAverage Level of Cyclically-Adjusted Primary Balance (CAPB)(Percent of GDP)More3-year averageCAPB level greater than 3.5 percent of GDP in approx. top quartilehas a percentile rank of3%
JAMAICA
70 INTERNATIONAL MONETARY FUND
As of April 01, 20162/20142015201620172018201920202021Nominal gross public debt131.9135.6128.7127.7120.4111.4102.594.687.0Sovereign SpreadsOf which: guarantees10.610.59.68.88.27.56.96.35.8EMBIG (bp) 3/47Public gross financing needs17.56.123.55.112.77.98.47.86.35Y CDS (bp)n.a.Real GDP growth (in percent)0.10.20.81.72.12.52.72.82.8RatingsForeignLocalInflation (GDP deflator, in percent)9.57.23.43.65.96.26.06.05.8Moody'sCaa2Caa2Nominal GDP growth (in percent)9.76.94.25.48.18.98.99.08.7S&PsBBEffective interest rate (in percent) 4/10.86.76.46.96.66.76.97.17.7FitchBB20142015201620172018201920202021cumulativeChange in gross public sector debt2.2-4.1-6.9-1.1-7.3-9.0-8.9-7.9-7.6-41.7Identified debt-creating flows-1.60.5-0.5-5.1-9.9-10.2-9.8-8.6-7.8-51.4Primary deficit-6.3-7.5-7.4-7.0-7.0-7.0-7.0-7.0-7.0-42.0Primary (noninterest) revenue and grants26.726.328.028.227.327.026.826.826.8162.9Primary (noninterest) expenditure20.318.820.621.220.320.019.819.819.8121.0Automatic debt dynamics 5/5.83.07.81.9-1.7-2.4-2.1-1.7-0.9-6.8Interest rate/growth differential 6/1.4-1.02.81.9-1.7-2.4-2.1-1.7-0.9-6.8Of which: real interest rate 1.5-0.73.94.00.80.40.70.91.58.4Of which: real GDP growth-0.1-0.2-1.0-2.1-2.5-2.8-2.8-2.6-2.4-15.2Exchange rate depreciation 7/4.44.05.0…………………Other identified debt-creating flows-1.15.0-1.0-0.1-1.2-0.8-0.70.10.1-2.6Privatization Receipts and Deposits Drawdown (negative)-1.15.0-1.0-0.1-1.2-0.8-0.70.10.1-2.6Contingent liabilities0.00.00.00.00.00.00.00.00.00.0Other debt flows (incl. ESM and Euroarea loans)0.00.00.00.00.00.00.00.00.00.0Residual, including asset changes 8/3.8-4.6-6.44.02.61.30.90.70.29.7Source: Fund staff calculations.1/ Public sector is defined as central government and includes public guarantees and PetroCaribe.2/ Based on available data.3/ EMBIG.4/ Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.5/ Derived as [(r - π(1+g) - g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate;a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).6/ The real interest rate contribution is derived from the numerator in footnote 5 as r - π (1+g) and the real growth contribution as -g.7/ The exchange rate contribution is derived from the numerator in footnote 5 as ae(1+r). 8/ Includes changes in the stock of guarantees, asset changes, and interest revenues (if any). For projections, includes exchange rate changes during the projection period.9/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.Figure A4.3. Jamaica Public Sector Debt Sustainability Analysis (DSA) - Baseline Scenario-0.8balance 9/primary(in percent of GDP unless otherwise indicated)Debt, Economic and Market Indicators 1/2005-2013ActualProjectionsContribution to Changes in Public DebtProjections2005-2013Actualdebt-stabilizing
-20-15-10-5051015202520052006200720082009201020112012201320142015201620172018201920202021Debt-Creating Flows
Primary deficit
Real GDP growth
Real interest rate
Exchange rate depreciation
Other debt-creating flows
Residual
Change in gross public sector debtprojection
(in percent of GDP)
-70-60-50-40-30-20-100102030cumulative
JAMAICA
INTERNATIONAL MONETARY FUND 71
Baseline Scenario201620172018201920202021Historical Scenario201620172018201920202021Real GDP growth1.72.12.52.72.82.8Real GDP growth1.70.10.10.10.10.1Inflation3.65.96.26.06.05.8Inflation3.65.96.26.06.05.8Primary Balance7.07.07.07.07.07.0Primary Balance7.06.26.26.26.26.2Effective interest rate6.96.66.76.97.17.7Effective interest rate6.96.66.76.87.07.5Constant Primary Balance ScenarioReal GDP growth1.72.12.52.72.82.8Inflation3.65.96.26.06.05.8Primary Balance7.07.07.07.07.07.0Effective interest rate6.96.66.76.97.17.7Source: Fund staff calculations.Underlying Assumptions(in percent)Figure A4.4. Jamaica Public DSA - Composition of Public Debt and Alternative ScenariosAlternative ScenariosComposition of Public DebtBaselineHistoricalConstant Primary Balance
02040608010012014016020142015201620172018201920202021Gross Nominal Public Debt(in percent of GDP)projection
051015202520142015201620172018201920202021Public Gross Financing Needs(in percent of GDP)projection
020406080100120140160180200520072009201120132015201720192021By Maturity
Medium and long-term
Short-termprojection
(in percent of GDP)
020406080100120140160180200520072009201120132015201720192021By Currency
Local currency-denominated
Foreign currency-denominatedprojection
(in percent of GDP)
JAMAICA
72 INTERNATIONAL MONETARY FUND
i-rate shock65Baseline6220304050607080901002010/112012/132014/152016/172018/192020/21Interest rate shock (in percent)Figure A4.6. Jamaica: External Debt Sustainability: Bound Tests 1/ 2/(External debt in percent of GDP) Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown. 2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.4/ One-time real depreciation of 30 percent occurs in 2013/14.
HistoricalBaseline620510152020304050607080901002010/112012/132014/152016/172018/192020/21Baseline and historical scenarios
Gross financing need under baseline (right)
CA shock 75Baseline6220304050607080901002010/112012/132014/152016/172018/192020/21
Combined shock 72Baseline6220304050607080901002010/112012/132014/152016/172018/192020/21Combined shock 3/
30 % depreciation89Baseline6220304050607080901001102010/112012/132014/152016/172018/192020/21Real depreciation shock 4/Non-interest current account shock (in percent of GDP)
Growth shock 66Baseline6220304050607080901002010/112012/132014/152016/172018/192020/21
Baseline:Scenario:Historical:5.56.26.8
Baseline:Scenario:Historical:2.01.10.2
Baseline:Scenario:Historical:1.3-0.7-7.4Growth shock (in percent per year)
Primary Balance Shock201620172018201920202021Real GDP Growth Shock201620172018201920202021Real GDP growth1.72.12.52.72.82.8Real GDP growth1.70.40.82.72.82.8Inflation3.65.96.26.06.05.8Inflation3.65.45.86.06.05.8Primary balance7.06.26.26.26.26.2Primary balance7.06.66.27.07.07.0Effective interest rate6.96.66.76.97.27.7Effective interest rate6.96.66.76.97.17.7Real Interest Rate ShockReal Exchange Rate ShockReal GDP growth1.72.12.52.72.82.8Real GDP growth1.72.12.52.72.82.8Inflation3.65.96.26.06.05.8Inflation3.613.96.26.06.05.8Primary balance7.07.07.07.07.07.0Primary balance7.07.07.07.07.07.0Effective interest rate6.96.67.07.47.98.8Effective interest rate6.97.86.46.66.87.3Combined ShockContingent Liability ShockReal GDP growth1.70.40.82.72.82.8Real GDP growth1.70.40.82.72.82.8Inflation3.65.45.86.06.05.8Inflation3.65.45.86.06.05.8Primary balance7.06.26.26.26.26.2Primary balance7.03.77.07.07.07.0Effective interest rate6.97.86.87.27.78.5Effective interest rate6.96.96.87.07.27.8Source: Fund staff calculations.Figure A4.5. Jamaica Public DSA - Stress TestsMacro-Fiscal Stress TestsBaselinePrimary Balance ShockReal GDP Growth ShockReal Interest Rate Shock(in percent)Real Exchange Rate ShockCombined Macro-Fiscal ShockAdditional Stress TestsBaselineUnderlying AssumptionsContingent Liability ShockNatural disaster
60708090100110120130140150201620172018201920202021Gross Nominal Public Debt(in percent of GDP)
200250300350400450500550201620172018201920202021Gross Nominal Public Debt(in percent of Revenue)
0246810121416201620172018201920202021Public Gross Financing Needs(in percent of GDP)
60708090100110120130140150160201620172018201920202021Gross Nominal Public Debt(in percent of GDP)
200250300350400450500550600201620172018201920202021Gross Nominal Public Debt(in percent of Revenue)
02468101214161820201620172018201920202021Public Gross Financing Needs(in percent of GDP)
JAMAICA
INTERNATIONAL MONETARY FUND 73
i-rate shock65Baseline6220304050607080901002010/112012/132014/152016/172018/192020/21Interest rate shock (in percent)Figure A4.6. Jamaica: External Debt Sustainability: Bound Tests 1/ 2/(External debt in percent of GDP) Sources: International Monetary Fund, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks. Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown. 2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.4/ One-time real depreciation of 30 percent occurs in 2013/14.
HistoricalBaseline620510152020304050607080901002010/112012/132014/152016/172018/192020/21Baseline and historical scenarios
Gross financing need under baseline (right)
CA shock 75Baseline6220304050607080901002010/112012/132014/152016/172018/192020/21
Combined shock 72Baseline6220304050607080901002010/112012/132014/152016/172018/192020/21Combined shock 3/
30 % depreciation89Baseline6220304050607080901001102010/112012/132014/152016/172018/192020/21Real depreciation shock 4/Non-interest current account shock (in percent of GDP)
Growth shock 66Baseline6220304050607080901002010/112012/132014/152016/172018/192020/21
Baseline:Scenario:Historical:5.56.26.8
Baseline:Scenario:Historical:2.01.10.2
Baseline:Scenario:Historical:1.3-0.7-7.4Growth shock (in percent per year)
J
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7
4
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2010/112011/122012/132013/142014/152015/162016/172017/182018/192019/202020/21Debt-stabilizingnon-interest current account 6/Baseline: External debt71.564.762.063.363.973.173.972.169.365.862.2-3.9Change in external debt2.3-6.7-2.71.30.69.20.8-1.7-2.8-3.5-3.6Identified external debt-creating flows (4+8+9)0.46.97.46.82.7-3.5-3.6-3.5-3.6-3.4-2.9Current account deficit, excluding interest payments4.410.26.65.03.6-1.1-1.8-1.2-1.3-1.1-0.9Deficit in balance of goods and services19.524.923.222.621.316.417.217.216.716.315.6Exports29.729.130.229.731.130.632.032.432.632.632.6Imports 49.154.053.452.252.447.049.249.649.448.948.2Net non-debt creating capital inflows (negative)-1.1-1.5-2.1-3.9-4.3-5.4-4.9-4.5-4.3-4.0-3.8Automatic debt dynamics 1/-3.0-1.82.95.73.43.03.22.21.91.71.8Contribution from nominal interest rate3.63.33.33.23.53.54.43.73.73.53.5Contribution from real GDP growth 0.4-0.60.5-0.6-0.1-0.5-1.2-1.5-1.7-1.8-1.8Contribution from price and exchange rate changes 2/ -7.0-4.4-0.93.2.....................Residual, incl. change in gross foreign assets (2-3) 3/2.0-13.6-10.1-5.5-2.212.74.41.70.8-0.1-0.7External debt-to-exports ratio (in percent)241.0222.5205.3213.3205.4239.1230.7222.6212.6201.9190.9Gross external financing need (in billions of US dollars) 4/1.42.72.11.51.61.20.91.41.01.01.0in percent of GDP10.018.314.110.311.48.96.210.06.86.66.2Scenario with key variables at their historical averages 5/10-Year10-Year79.787.695.1102.4109.4116.0-1.7HistoricalStandard Key Macroeconomic Assumptions Underlying BaselineAverageDeviationReal GDP growth (in percent)-0.60.9-0.81.00.20.21.70.81.72.12.52.72.8GDP deflator in US dollars (change in percent)11.36.61.3-4.8-2.03.95.4-1.4-1.61.11.92.42.4Nominal external interest rate (in percent)5.84.95.14.95.56.81.45.46.05.25.35.45.7Growth of exports (US dollar terms, in percent)-1.05.54.4-5.62.91.810.2-2.34.94.55.15.25.2Growth of imports (US dollar terms, in percent)5.818.3-0.6-6.0-1.55.315.6-10.94.74.13.94.23.8Current account balance, excluding interest payments -4.4-10.2-6.6-5.0-3.6-7.44.01.11.81.21.31.10.9Net non-debt creating capital inflows 1.11.52.13.94.34.52.75.44.94.54.34.03.81/ Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.2/ The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator). 3/ For projection, line includes the impact of price and exchange rate changes.4/ Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period. 5/ The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.6/ Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.Table A4.1. Jamaica: External Debt Sustainability Framework, 2010/11-2020/21(In percent of GDP, unless otherwise indicated)Actual
Appendix I. Letter of Intent
JAMAICA
Kingston, Jamaica
June 2, 2016
Ms. Christine Lagarde
Managing Director
International Monetary Fund
Washington, DC 20431
Dear Ms. Lagarde,
Jamaica has continued the steadfast implementation of its Fund-supported economic reform
programme aimed at overcoming the long-standing problems of low growth and high debt. All
quantitative fiscal and monetary performance criteria under the programme have been met for all
quarterly test dates, with the exception of the March 2015 nominal target for the primary surplus for
the central government, which was missed by a narrow margin, owing to lower than projected
inflation and GDP growth (the surplus still came in at the projected 7.5 percent of GDP). The
Government has also implemented all of the structural benchmarks that were included in the
programme, albeit with some minor delays.
The Government remains fully committed to meeting the objectives of the programme, as well as its
specific targets. Attachment 1 to this letter is a supplementary Memorandum of Economic and
Financial Policies (MEFP), presenting performance under the programme, and updating the specific
policies to meet the programme’s ultimate objectives, including the associated quantitative targets
and structural benchmarks. Attachment 2 is the updated Technical Memorandum of Understanding.
On the basis of our performance under the programme thus far as well as our strong commitment
to the continued implementation of the programme, the Government requests that the Executive
Board of the IMF complete the combined 11th and 12th reviews of the extended arrangement under
the Extended Fund Facility, and approve the modification of performance criteria for end-September
2016 and the new performance criteria for end-December 2016, as well as the purchases under the
arrangement of SDR 56.64 million.
The Government believes that the policies described in the attached MEFP are adequate to achieve
the programme’s objectives. However, if necessary, the Government stands ready to take any
additional measures that may be required. The Government will consult with the Fund in advance on
the adoption of these measures and revisions to the policies contained in the MEFP, in accordance
with the Fund’s policies on such consultation.
The Government will also provide the Fund staff with all the relevant information required to
complete programme reviews and monitor performance on a timely basis. The Government will
observe the standard performance criteria against imposing or intensifying exchange restrictions,
introducing or modifying multiple currency practices, concluding bilateral payment agreements that
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are inconsistent with Article VIII of the Fund’s Articles of Agreement and imposing or intensifying
import restrictions for balance of payments reasons.
As part of our communication policy, we intend to publish this letter on the websites of the Ministry
of Finance and Planning and the Bank of Jamaica to keep domestic and international agents
informed about our policy actions and intentions. In that regard, we authorize the Fund to publish
this letter and its attachments as well as the associated staff report.
Very truly yours,
/s/
Audley Shaw
/s/
Brian Wynter
Minister of Finance and the Public Service
Governor, Bank of Jamaica
Jamaica
Jamaica
76 INTERNATIONAL MONETARY FUND
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Attachment I. Memorandum of Economic and Financial Policies
I. PERFORMANCE UNDER THE PROGRAMME
1. Policy implementation under the programme remains strong and structural reforms
are progressing. All quantitative performance targets for end-December 2015 and for end-March
2016 were met. The structural benchmarks for the period mid-November 2015 to mid-May 2016
were also met:
Changes in legislation for the new public pension system were tabled in November 2015;
Key performance indicators, as outlined in the National Compliance Plan (NCP), to measure the
effectiveness and efficiency of the tax system were implemented in November 2015;
Phase 2 of the RAiS (GENTAX) integrated tax software package was implemented for all major
tax types by December 2015;
A full-time dedicated management team for the implementation of the human resource
software system was put in place in January 2016;
And the capacity of the Post-Clearance Audit unit in the Jamaica Customs Agency (JCA) was
increased through the hiring of 15 additional auditors by end-March 2016.
II. POLICIES FOR 2016/17 AND BEYOND
2. The new Government remains fully committed to the reform programme. It aims to
combine prudent fiscal policies with efforts to boost growth and job creation, which have remained
too low for too long. The quantitative targets that serve as performance criteria and indicative
targets under the programme have been updated, and are presented in Table 1. The structural
conditionality under the programme is presented in Table 2.
Fiscal Policy
3. The budget for 2016/17 targets a primary surplus of 7.0 percent of GDP, and increases
room for growth-enhancing capital expenditure to support growth and job creation. The
budget was adopted by Parliament in June 2016. Economic growth is projected at 1.8 percent for
the coming fiscal year, up from just under 1 percent in 2015/16. Capital spending is projected to
increase from 2 percent of GDP in 2015/16 to 2.6 of GDP in 2016/17, facilitated by the lower primary
surplus target. To keep public debt on a downward trajectory to 96 percent of GDP by 2020 and to
60 percent by 2026, a 7 percent of GDP primary surplus will be maintained over the medium term.
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Tax Reforms
4. Comprehensive tax reform is a key pillar of our economic reform programme. The goal
is an efficient and broad-based tax system that applies equitably to all entities, regardless of their
sphere of economic activity. Based on ongoing IDB TA, we will continue to improve the reporting on
tax expenditures and their estimated fiscal costs in the context of future budgets.
5.
Continuing tax reforms to rebalance from direct toward indirect taxes is a central
element of our program. Starting July 1, 2016, the exemption threshold for the personal income
tax will be raised to J$1,000,272 from the current J$592,800. A further increase to J$1,500,096 will
take place on April 1, 2017. The marginal tax rate for earnings above J$6 million will be increased
from 25 to 30 percent on July 1, 2016.
The cost of this tax reform is estimated at 0.7 percent of GDP (about J$12 billion) in FY16/17 and
a further 0.9 percent of GDP (about J$16 billion) in FY17/18.
Offsetting measures in FY16/17 will encompass (i) a J$7 increase in SCT on fuels, (ii) increasing
the departure tax to US$35, (iii) increase the SCT on cigarettes by J$2 per stick, (iv) implementing
a new LNG taxation regime. These measures are expected to yield 13.8 bn for FY16/17.
With the support of IMF TA, a comprehensive tax reform package will be put in place for
FY17/18 which continues to rebalance towards indirect taxation, including the scope for
environmental/ carbon taxes (for which Jamaica is particularly well suited given its tourism
potential).
6. New legislation pertaining to transfer pricing including the requirement to file a
declaration of connected party transaction was passed in November 2015 and is now in force.
With OECD technical assistance, the Tax Administration of Jamaica (TAJ) is developing its capacity to
effectively administer the new law. TAJ will enforce compliance action for year of assessment 2016
7. Next steps to strengthen tax and customs administration include:
Continued implementation of the TAJ National Compliance Plan including the rationalization of
key performance indicators.
Completion of staffing of the TAJ as a Semi-Autonomous Revenue Authority (SARA) by end-
October 2016. Staffing at the four (4) top levels, (Executive to AGM levels), has been completed.
Following up on the entity-by-entity review of all grandfathered tax incentives, the Fiscal
Impacts Report will be produced by September 2016.
Improving the efficiency of the large taxpayers’ office (LTO) by (i) maintaining e-filing and on-
time filing rates of 90 percent for LTO clients for major taxes and (ii) increasing the number of
comprehensive audits to 90 per year by March 2017.
Increasing the number of completed PCA audits to 60 a year by March 2017.
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Phase 1 of the Enterprise Content Management (ECM) system processes comprising (1) the
electronic imaging and data capture of paper tax returns and (2) the electronic imaging of other
paper documents (e.g., taxpayer letters, certified copies of certificates, auditor working papers,
taxpayer rulings etc, in RAiS) has been completed. Interim testing on linking of these processes
to RAiS case actioning and reporting components is ongoing and expected to be concluded by
June 2016.
The legislative framework supporting enhanced trade facilitation practices by the JCA, as
articulated in phase III of the Customs Act, is being harmonized with trade facilitation, the
Special Economic Zone (SEZ) legislation, and treaty obligations with World Bank and CARTAC
assistance. Phase III of the Customs Act will be tabled in parliament by end-December 2016.
Upon finalization of the Phase III of the Customs Act, developing effective administrative
procedures will be critical for the successful implementation of the SEZ regime, in particular to
strengthen product identification and inventory management systems compliance enforcement
to enhance risk management, and post clearance audit.
Reforms to Public Financial Management (PFM) and the Budget Process
8. The government is implementing its updated action plan for public financial
management reform, in collaboration with its development partners. In this context:
By November 2016 a new procurement manual will be prepared with IDB assistance. An
Electronic Tendering System has been implemented in four pilot entities (Ministry of Finance
and Public Service, e-Gov, Ministry of Health and National Health Fund) with two more entities
(HEART Trust and BOJ) expected to be finalized by end-June 2016.
The macro-fiscal capacity of the Ministry of Finance and the Public Service (MoFP) will be
strengthened with the support of IMF and other TA. We aim to recruit additional qualified staff
by August 2016.
The Treasury Single Account (TSA) at the Bank of Jamaica (BOJ) will be further expanded and
improved. The responsibility of managing the government’s banking arrangements will be
transferred to the Accountant General’s Department (AGD). An updated inventory of all bank
accounts in the public sector will be prepared by end-June 2016 with the aim of closing most of
them and converting the remainder into zero-balance accounts. Salaries of over 27,000 civil
servants in the central government are paid directly from the TSA. By June 2016, salaries of
about three-quarters of central government employees will be paid directly from the TSA,
including teachers and police. Most imprest accounts will be terminated by end-August 2016.
The first phase of CTMS enhancements will be concluded by December 2016. Transfer of the
responsibility for further development and management of the CTMS from the MoFP to the
AGD has commenced and is expected to be completed by August 2016. The mapping of
function is in progress and expected to be finalized by July 2016. A ledger accounting system
has been introduced into the CTMS with sub-ledgers for the RTGS and ACH accounts. A plan for
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introducing sub-ledgers for all other bank accounts maintaining a cash balance will be prepared
by June 2016 and implemented starting August 2016.
By July 2016, a plan for paying all revenues, including earmarked revenues, into the
Consolidated Fund (CF) will be drawn up. In particular, the plan will outline the steps to: (i) close
all accounts used by MDAs to deposit funds earmarked as AIAs and (ii) enable deposit of funds
presently earmarked as AIAs directly into the CF.
By end-July 2016, all cash transfers for intra-government transactions will be eliminated.
By end-September 2016, a new organizational structure for the Accountant General’s
Department should be approved by Corporate Management Development (CMD) branch in the
Ministry of Finance and Public Service. (Proposed new structural benchmark for end-September
2016).
A service level agreement (SLA) between the BOJ and the Government for banking services
provided by the BOJ will be signed in June 2016 following the full transfer of responsibility for
the management of government accounts to the AGD.
Debt Management
9. The Government is committed to sharply reducing public debt, which is expected to
decline to 96 percent of GDP by March 2020. This is expected to be achieved by sustained fiscal
efforts, policies to bolster growth, as well as a prudent debt management strategy. In designing and
implementing these undertakings, the Government will seek to ensure sound public sector
governance and public debt management. The Government will further strengthen its debt
management strategy development and implementation, with the goal of reducing the burden of
servicing government debt, supporting the continued reduction of public debt to a sustainable level,
and ensuring access to multiple sources of financing. Moreover, the debt management strategy will
seek to further develop and deepen the domestic bond market, so as to reduce currency, duration
and concentration risk for both the government and the financial sector.
Public Sector Reform
10. The Government is committed to improving the efficiency, quality and cost
effectiveness of the public sector.
Public sector transformation. We will:
By March 2018, centralize legal services within the central government under the office of
the Attorney General , with support from Justice Canada.
Subject to legislative approval, implement the merged organizational structure between
Betting Gaming and Lotteries and the Racing Commissions in April 2017.
Merge selected commodity Boards and the Export Division of the Ministry of Agriculture &
Fisheries which deals with Spices into a single new body to be named the Jamaica
Agricultural Commodities Regulatory Authority (JACRA). It is anticipated that the legal
80 INTERNATIONAL MONETARY FUND
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aspects will be finalized by April 2016, and the full merger is expected to be completed by
September 2016.
Divest the Petroleum Company of Jamaica Limited, Petcom—Negotiations with the bidder
have been completed.
Consequent on securing funding, we will seek to complete the procurement of the system
for the Asset Management Shared Services and have a contract in place with the successful
bidder by April 2017.
We will submit to Cabinet an action plan for public sector transformation by end-September
2016. In particular, it will include detailed timelines for (1) the introduction of shared corporate
services for communications and human resource management and (2) the merger, abolition
and/or divestment/privatization of entities. The plan will also outline specific areas where
efficiency gains can be made. (Proposed new structural benchmark for end-September 2016)
Wages and salaries. The Government has signed new wage agreements for the 2-year period
after March 2015 with 97 percent of public sector employees. Discussions for the period starting
April 2017 are expected to be underway by November 2016. Informed by the compensation
review to be completed by December 2016, the government’s goal is to achieve a wage bill of 9
percent of GDP in 2018/19, and to firmly maintain the ratio of public debt to GDP on a
downward path over the medium term. In order to achieve this objective, the GOJ will continue
to reduce the size of the public sector through the elimination of posts and an attrition
programme, subject to the capacity needs in a limited number of priority areas.
Compensation Review. We will continue to build a comprehensive database to include all
allowances paid to public employees across each MDA to ensure adequate control and
oversight over this part of the wage bill. The database will be by occupational grouping and will
include all types of allowances paid, their amounts as well as the number of employees that
benefit from each type of allowance in a given fiscal year. A two-part pilot implementation will
be pursued. A pilot for the Ministry of Finance and the Public Service will be completed by end-
August 2016, followed by island-wide pilots, to be completed by end-November 2016, at the
Ministry of Health (medical professionals), Ministry of Education, Youth and Information
(teaching groups) and the Jamaica Constabulary Force (police groups). (Proposed new structural
benchmark for end-November 2016) The review of all other central government MDAs will be
completed by March 2017.
Employee Census. To ensure adequate oversight, we will verify each employee's post and
eligibility of the post for allowances beginning with a two-part pilot where the first part will
comprise of island-wide pilots at the Ministry of Finance and the Public Service, the civilian
population of the Ministry of National Security, and the NIS to be completed by end-August
2016. The second part will include an island-wide pilot for the non-teaching personnel in the
Ministry of Education to be completed by end-November 2016. (Proposed new structural
benchmark for end-November 2016). These pilots target groups with high turnover rates where a
headcount exercise could yield significant gains. The verification for all other central government
MDAs will be finalized by March 2017.
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Pension Reform. Discussion of the proposed legislative changes in parliament has been
delayed by the early elections. The Pension Bill is expected to be re-tabled in Parliament by July
2016. The new public pension system, as described in the June 2014 MEFP, is expected to be
implemented in the first quarter of FY17/18.
11. The implementation of the human resources software system (the HCMES system;
including Payroll) is progressing. A project plan was completed in August 2015 and a full-time
dedicated project management team (including specialists in the areas of Business Process
Mapping, Human Resource Management, Payroll Administration and Data Migration) was put in
place by end-January 2016 (structural benchmark). The configuration of the system will be
completed by end-June 2016, when the roll–out to the first 14 MDAs will begin.
12. In the area of public bodies, further improvement is to be achieved to improve their
efficiency and supervision.
To enhance transparency, the annual reports (including audited statements) for three-quarters
of self-financing public bodies has been completed. The sanctioning process under Section 25 of
the Public Bodies Management and Accountability Act of self-financing public bodies that failed
to meet the statutory condition without reasonable cause is ongoing.
The new structure of the Auditor General’s office has been approved. Its ongoing
implementation will allow for more in-depth and frequent reviews of financial statements of
budget funded public bodies and enforcement of the six months’ time limit for their submission
to the Auditor General.
We will develop and submit to Cabinet for approval a new policy on public bodies that will
ensure consistent PFM rules for public bodies (structural benchmark for June 2016). The policy
will create classes of public bodies, identify key PFM principles to be adhered to for each class,
and eliminate the current classification by funding source. A unit in the MOFP will be assigned to
be responsible for ensuring that the policy on public bodies is being adhered to across the full
body of PFM reform projects.
Upon approval by Cabinet of the new policy on public bodies, we will conduct a review of all
existing public bodies to determine their classification. The review will also evaluate the scope
for merging and reintegrating some public bodies into the central government. This review will
be completed by December 2016.
III. FINANCIAL SECTOR REFORMS
13. We are strengthening the prudential framework for financial supervision.
Under the Banking Services Act, the code of conduct on consumer related matters will be issued
by August 2016. Regulations pertaining to agent banking will be tabled by August 2016. The
suite of regulations and rules that will comprise the regime for financial holding companies and
consolidated supervision will be tabled by end-December 2016.
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Following industry consultation and guidance from the Steering Committee, we have started
implementing a strategy to introduce and gradually tighten prudential standards for the
securities sector:
-
In April 2016, we introduced an operational risk-weighted asset component in the
calculation of securities dealers’ capital adequacy;
- By December 2016, we will require all securities dealers to conduct regular stress tests and
submit test results;
- We will implement a limit of 25 percent on exposure to counterparty by 2019;
- We are monitoring the dealers’ retail repo leverage ratio, with the goal of introducing a
minimum retail repo leverage ratio by April 2017;
- We will start issuing comprehensive prudential guidelines for securities dealers in June
2016.We will ensure that in the near- to medium-term, the retail repo portfolios of individual
firms and the securities industry as a whole will be at a level deemed by the BOJ and the FSC
to be systemically safe and prudentially manageable.
We will have taken steps to further strengthen depositor protection and investor compensation
across financial institutions.
14. We are enhancing the arrangements for financial crisis preparedness and
management.
We will prepare a consultation paper for the resolution framework for the entire financial sector,
including proposals on (i) the scope of institutions that would be covered by the resolution
regime; (ii) the resolution powers; (iii) the legal structure of the regime (i.e., administrative, court-
based, or a combination); and (iv) the roles and responsibilities of the various agencies with
respect to resolution (proposed new structural benchmark for end- October 2016). A working
group has been established to prepare this paper, with input from stakeholders and IMF TA.
By end-September 2017, we will table the legislative provisions, consistent with IMF TA, to
support the national crisis management plan and the resolution framework for the banking and
securities sectors.
15. We will continue to strengthen the mandate and governance of the BOJ over the
programme period.
The Financial System Stability Committee, introduced by the amended BoJ Act which became
effective in October 2015 and vested the BOJ with the responsibility for financial stability, will be
formally established by September 2016. The functions and powers of the FSSC include
producing financial stability assessments, the regular exchange of information on financial sector
risks, commissioning stress tests and determining parameters that will trigger macro-prudential
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action. A proposal will be submitted to Cabinet in September 2016, discussing further
amendments to the BOJ Act for enhancing BOJ governance and autonomy.
16. We are implementing measures to protect the interest of retail repo clients. In addition
to the transition to the trust-based framework in August 2015, we raised the investment cap for CIS
in foreign assets to 15 percent in June 2015, and to 25 percent by end-December 2015. Going
forward, the BOJ will continue to monitor market conditions and assess the need to lift the
investment cap further.
IV. MONETARY AND EXCHANGE RATE POLICY
17. Monetary policy aims to achieve single digit inflation within a flexible exchange rate
regime. We envisage inflation in the range of 4.5 to 6.5 percent in FY2016/17. The long term
objective is to gradually reduce inflation to a rate that is consistent with that of our main trading
partners, and eventually to full-fledged inflation targeting. The BOJ is completing its first review to
assess our readiness for inflation targeting. The outcome of the annual reviews will provide the
inputs for an informed decision on inflation targeting to be made by Cabinet.
18. The BOJ will continue to ensure the provision of adequate liquidity to the financial
system at a price consistent with its policy goals. Guided by IMF TA, the BOJ is developing a
comprehensive strategy to improve the effectiveness of its open market operations and liquidity
assurance framework in order to enhance the monetary policy transmission mechanism. Specifically,
as a further refinement to its liquidity provision framework, the BOJ has introduced periodic auctions
for repo operations in October 2015. The BOJ will begin a programme of transitioning its policy rate
to an overnight interest rate. This transition will be done over a six-month period and will
commence with the adjustment of the interest rate on its overnight deposit facility by July 2016. To
reduce the relative attractiveness of foreign-currency denominated investments relative to J$
alternatives, the BOJ will also require a portion of the foreign currency cash reserve requirement for
commercial banks to be held in J$, starting September 2016.
19. The BOJ will continue to facilitate the development of the foreign exchange market.
The BOJ, in consultation with IMF TA, is exploring mechanisms to improve price discovery in the FX
market and to prevent excessive speculative position taking in the market. The BOJ also remains
cognizant of the need to purchase reserves to further boost the net international reserves.
V. GROWTH ENHANCING REFORMS
20. We have established an Economic Growth Council (EGC). The EGC includes
representatives from the public and private sector who will focus critical work in the areas of growth
and job creation. The EGC is mandated by the Prime Minister and Cabinet to identify high-impact
growth initiatives. The EGC will be supported by an Executive Secretariat that is also mandated,
resourced and staffed to work closely with Government ministries, departments and the private
sector. Appropriate monitoring, evaluation and transparency mechanisms will be put in place to
84 INTERNATIONAL MONETARY FUND
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ensure that the EGC works closely with the Jamaican people, the private sector and civil society in
the context of the growth and jobs agenda.
21. Further actions for improving the business climate are critical:
A revised standardized pricing framework for development application fees has been drafted and
is expected to be approved by Cabinet soon.
We will continue to report, on a quarterly basis, on progress in reducing the time needed for the
approvals process for development projects, especially for commercial development projects,
including against the 90 day benchmark. For Q1 2016, around 65 percent of all building and
planning applications were approved within 90 days.
LAMP services were expanded to St. James, Trelawny, Hanover, St. Ann and Westmoreland in
2015/16, with 1,236 new titles issued during the year. Under the GoJ Land Titling programme,
15000 titles are expected to be issued each year for the period FY2015/16 to FY2017/18. For the
period April 1, 2015 – January 31, 2016, the number of titles issued under the programme
amounted to 7, 740.
The roll-out of the online system for business registration will start by end-June, 2016.
Urgent actions will be taken to reduce the time needed for entrepreneurs to get an electricity
connection. Plans foresee the automation of the work processes within the Government
Electrical Regulator (GER) and the acquisition of AMANDA software to streamline procedures for
scheduling, inspecting, approving and certifying electrical installations. Adoption of the
AMANDA system is expected to be completed by April 2017, with IDB support.
Plans to establish a Port Community System (PCS) to electronically integrate and streamline
export and import procedures are underway. The ASYCUDA World Customs Management
System acquired by the JCA will support integrated processes/procedures and the National
Single Window, the latter supported by a World Bank loan. Functions of the PCS that cannot be
offered through ASYCUDA will be pursued by the private sector, possibly under a management
contract. The GOJ has set up a Trade Facilitation Task Force which is examining the
public/private issues, including pertaining to the PCS. The implementation of the project started
in January 2016, and will be completed by end-December, 2017.
We are developing an umbrella financial inclusion strategy, with inputs from stakeholders and
consultancy from the World Bank, covering key areas including MSME financing, housing
finance, payments, rural finance, consumer protection and literacy. We will establish a financial
inclusion council by July 2016 to oversee the launch and implementation of the strategy.
The Development Bank of Jamaica (DBJ) achieved 121.2 percent of its MSME lending target in
2015/16. The DBJ is targeting to provide increased funding to MSMEs in 2016/17. The Mobile
Money for Microfinance initiative is being reconfigured to focus on establishing an ecosystem
for private-sector driven mobile money operations. With assistance from the IDB, the project will
start in August, 2016 and will be completed by 2018.
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We will develop other areas of reform to improve the access to capital and reduce the cost of
funding for MSMEs, including provision of support for MSME capacity development
programmes, streamlining the process of listing on Junior Stock Exchange, establishment of a
venture capital eco-system, full implementation of collateral and insolvency reforms, SME value
chain development, promotion of factoring and lease financing mechanisms, enhancement of
the partial credit guarantee scheme and microfinance legislation and institutional reform.
The Agro Parks Initiative, which aims to stabilize the agricultural supply chain, boost exports, and
increase import replacement is progressing. Nine agro parks are already operational.
Negotiations are ongoing to establish at least three more parks in 2016/17, with the IDB and
CDB under solicitation to support at least two new Agro Parks. An IDB-financed consultancy is
underway to prepare a sustainability framework for the existing Agro Parks and criteria for
selection of new Parks. A matching grant scheme will benefit small farmers in their cluster work
with lead anchor firms that export.
A national strategic plan for the BPO industry is now being implemented. Key actions under the
plan include the establishment of a policy and legislative framework; labour market initiatives,
infrastructure development, the development of business plans to attract developers and
investors, and actions to support market penetration.
22. Strategic investments to establish Jamaica as a logistics hub are well underway:
In early April 2015, a 30-year concession agreement was signed with a private consortium
regarding the privatization of Kingston Container Terminal (KCT). Under the agreement,
beginning in 2016, the concessionaire will undertake dredging the access channel to the
Kingston Harbour and the KCT basin to allow for the handling of larger vessels that will transit
the Panama Canal after its expansion. The transfer of the operating control to the concessionaire
is expected to take place shortly after financial close of the transaction, which is expected by
June 2016. The concessionaire is expected to invest approximately US$625 million over two
phases of the concession, with the possibility of a third phase to be negotiated.
Work is continuing on the privatization of Norman Manley International Airport (NMIA). The
Cabinet will need to approve the list of preferred bidders, to whom a request for proposal will
be sent.
Work is also proceeding on the Caymanas SEZ, with World Bank support. A request for
expression of interest was completed in December 2015, and we plan to issue the request for
proposals for the feasibility study to the pre-qualified firms soon. This work is closely aligned
with a Master Plan for the Logistics Hub Initiative expected to be completed by April 2017, also
supported by the World Bank.
The Framework Agreement has been extended for a year to August 2016 for the development of
a transhipment port and industrial and commercial zones in the Portland Bight area by China
Harbour Engineering Company (CHEC). Technical feasibility studies for the project have
commenced. This is a prerequisite for determining the construction methodology and for
obtaining the terms of reference from NEPA for the Environmental Impact Assessment.
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23. Reducing the cost of electricity is critical to improve competitiveness:
The action plan prepared by the Electricity Sector Enterprise Team (ESET) foresees replacing
current (oil-fired) generation capacity with gas, coal and ethane-fired plants, to achieve
significant cost savings. Next steps will include the conversion of the Bogue power station from
oil to gas by August 2016. In addition, the government has approved the construction of
Jamaica’s first natural gas-fired power plant, a 190MW facility to be built and operated by JPS,
and to be completed by 2018. Several renewable energy projects are also under way.
We will prepare a plan to ensure that all public entities (central government, local government,
and public bodies) meet their financial obligations in a timely manner.
24.
Labour market reforms are progressing. In the context of the recently launched
Comprehensive Labour Market Reform Agenda, a Labour Market Reform Commission and
Secretariat was established and became operational on April 1, 2015. The Commission has been
reviewing policies and practices in the five thematic areas of education and training; productivity,
technology and innovation; labour policies and legislation; social protection; and industrial relations.
A first draft of recommendations will be submitted to Cabinet soon. Final recommendations will be
submitted by end FY16/17.
VI. REFORM OF SOCIAL SPENDING
25. Efforts to strengthen the social protection framework are progressing. Implementation
of the graduation strategy for PATH households was reviewed by the World Bank in December 2015,
with recommendations on potential improvements. The graduation strategy will be submitted to
Cabinet by end-June 2016. The actual implementation of the strategy will start by September
2016.The government launched a comprehensive social protection strategy in July 2014; a
monitoring and evaluation framework has been developed.
26. A national ID system (NIDS) will be rolled-out to all residents by 2020 which will
improve targeting of social spending. The first phase, which included the development of the
legislative and institutional framework and designing the NIDS ICT infrastructure, was completed
with IDB support. The second phase will begin in FY16/17 and will include the submission of the
NIDS policy to parliament by March 2017.
27. We aim to improve the administrative efficiency of social protection programs. A
comprehensive plan for transition of PATH and NIS payments to retail electronic payment products
is expected by end-June 2016. Measures to deepen payment infrastructure in rural areas and
streamline procedures for collecting social payments are being identified.
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20142017End-Dec.End-JuneEnd-Mar.StockPCAdjusted PCActualPCAdjusted PCActualPCPCProposed revised PCProposed PCIndicative TargetsFiscal targets1. Primary balance of the central government (floor) 4/60.766.0120.7120.811.033.029.054.0119.52. Tax Revenues (floor) 4/9/280.0291.7393.0411.899.0203.0198.0300.0440.03. Overall balance of the public sector (floor) 4/-40.3-36.84.4-14.3-10.826.3-29.0-37.0-41.0-51.5-17.24. Central government direct debt (ceiling) 4/5/47.01.577.0-52.819.541.045.055.061.05. Central government guaranteed debt (ceiling) 4/0.0-19.20.0-21.30.00.00.00.00.06. Central government accumulation of domestic arrears (ceiling) 6/12/13/21.60.0-1.20.00.00.00.00.00.00.07. Central government accumulation of tax refund arrears (ceiling) 7/12/13/23.20.0-5.30.0-4.40.00.00.00.00.08. Consolidated government accumulation of external debt payment arrears (ceiling) 6/12/0.00.00.00.00.00.00.00.00.09. Social spending (floor) 9/10/15.620.823.226.14.89.79.716.424.3Monetary targets10. Cumulative change in net international reserves (floor) 8/11/14/1997.7-338.0-341.1442.2-339.0-384.0429.0-199.6-49.6-49.652.3152.311. Cumulative change in net domestic assets (ceiling) 11/14/-120.261.849.6-37.439.151.1-38.128.79.09.021.9-2.01/ Targets as defined in the Technical Memorandum of Understanding.2/ Including proposed modified performance criteria for the net international reserves and the net domestic assets.3/ Based on program exchange rates defined in the March 2015 TMU.4/ Cumulative flows from April 1 through March 31.5/ Excludes government guaranteed debt. The central government direct debt excludes IMF credits.6/ Includes debt payments, supplies and other committed spending as per contractual obligations.7/ Includes tax refund arrears as stipulated by law.8/ In millions of U.S. dollars.9/ Indicative target. 10/ Defined as a minimum annual expenditure on specified social protection initiatives and programmes. 11/ Cumulative change from end-December 2014.12/ Continuous performance criterion. 13/ The accumulation is measured against the stock at end-March 2015, which is J$21.3 billion for domestic arrears and J$21.7 billion for tax arrears. 2015 End-Dec.Table 1. Jamaica: Quantitative Performance Criteria 1/2/3/End-MarchEnd-Dec.(In billions of Jamaican dollars)2016 End-Sept
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MeasuresStatus/TimingStructural BenchmarksTimingImplementation statusInstitutional fiscal reforms1. Revise the relevant legislation for the adoption of a fiscal rule to ensure a sustainable budgetary balance, to be incorporated in the annual budgets starting with the 2014/15 budget.March 31, 2014Met2. Government to finalize a review of public sector employment and remuneration that serves to inform policy reform.March 31, 2014Met3. Government to ensure there is: (i) no financing of Clarendon Alumina Production (CAP) by the government or any public body, including Petro Caribe; and (ii) no new government guarantee for CAP or use of public assets (other than shares in CAP and assets owned by CAP) as collateral for third-party financing of CAP.ContinuousMet4. Government to table in parliament a budget for 2014/15 consistent with the program.April 30, 2014Met5. Government to table in parliament a comprehensive Public Sector Investment Program (MEFP paragraph 17, Country Report No. 13/378).April 30, 2014Met6. Cap the total loan value of all new user-funded PPPs at 3 percent of GDP on a cumulative basis over the program period.ContinuousMet7. Ensure that the public service database e-census is up to date and covers all Ministries, Departments and Agencies.September 10, 2014Met8. Develop an action plan for public sector transformation to cover the following areas: (1) the introduction of shared corporate services, (2) the reallocation, merger, abolition and divestment/privatization of departments and agencies, (3) outsourcing of services, (4) strengthening control systems and accountability (including in auditing and procurement), and (5) aligning remuneration with job requirements.September 30, 2014Met9. Government to table changes in legislation for the new public sector pension system expected to be implemented by April 2016 (MEFP paragraph 25, Country Report No. 14/169).November 30, 2015Met10. Government to establish a new Cash Management Unit in the Accountant General Department (AGD) and transfer to it the cash management function currently handled by the Fiscal Policy Management Unit (FPMU).September 30, 2015Met11. Put in place a full-time dedicated project management team for the implementation of the human resources software system (including specialists in the areas of Business Process Mapping, Human Resource Management, Payroll Administration and Data Migration).January 31, 2016Met12. Develop and submit to Cabinet for approval a new policy on public bodies that will ensure consistent PFM rules for public bodies. June 30, 201613. Submit to Cabinet an action plan for public sector transformation by end-September 2016. In particular, it will include detailed timelines for (1) the introduction of shared corporate services for communications and human resource management and (2) the merger, abolition and/or divestment/privatization of entities. The plan will also outline specific areas where efficiency gains can be made. September 30 2016Proposed14. The Corporate Management Development (CMD) branch in the Ministry of Finance and Public Service to approve a new organizational structure for the Accountant General’s Department.September 30 2016Proposed15. Complete a two-part island-wide pilot to build a comprehensive database on all allowances paid to public employees in the Ministries of Finance, Health, Security, and Education.The database will be by occupational grouping and will include all types of allowances paid, their amounts as well as the number of employees that benefit from each type of allowance in a given fiscal year. November 30, 2016Proposed16. Verify each government employee’s work post and eligibility for allowances in a two-part pilot across the Ministry of Finance, the civilian population of the Ministry of Security, and the NIS, and non-teaching personnel in the Ministry of Education.November 30, 2016ProposedTax Reform17. Government to implement the Cabinet decision stipulating the immediate cessation of granting of discretionary waivers as stipulated in the TMU.ContinuousMet18. Broader tax reform to become effective, including the modernization of taxes, with limited exemptions, and lower tax rates (paragraphs 6, 7, 8, and 9 of the MEFP for Country Report 13/378) and as stipulated in par. 13 of the March 2014 MEFP.March 31, 2014Met19. Government to table in parliament amendments to the GCT as stipulated in paragraph 12 of the June 2014 MEFP.June 30, 2014Met20. Government to conduct an entity by entity review of all grandfathered entities and of their specific tax incentives in the context of the new tax incentives legislation by end-2014/15.January 31, 2015Not met 1/21. Government to table legislation governing the tax regime that will be part of the SEZ legislation consistent with the criteria listed in the June 2015 MEFP par. 13 to help safeguard the integrity of the tax system and avoid tax leakage. October 31, 2015MetTax Administration22. Government to make e-filing mandatory for LTO clients with respect to General Consumption Tax (GCT) and Corporate Income Tax (CIT).March 31, 2014Met23. Government to implement ASYCUDA World for the Kingston Port as a pilot site.December 31, 2014Met24. Government to: (i) increase the number of staff in the large taxpayers office (LTO) by a further 30 auditors (from March 2014 to March 2015); (ii) increase the number of (full plus issue) audits completed in the LTO by 100 percent (from FY 2013/14 to FY 2014/15); (iii) achieve 95 percent take up rate of e-filing and e-payment in the LTO; (iv) write-off all GCT and SCT debts that have been subjected to risk-rated stress tests and consequently categorized as uncollectible according to the Regulations.March 31, 2015Not met 2/25. Government to complete pilot testing of ASYCUDA World (covering imports and exports) in the Kingston port.May 31, 2015Met26. Government to implement Phase 1 (Registration, GCT, SCT, GART, Telephone) of the GENTAX integrated tax software package.February 28, 2015MetTable 2. Jamaica: Structural Program Conditionality
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27. Government to table in Parliament proposals for a comprehensive overhaul of the Customs Act.June 30, 2015Met28. Government to fully implement the key performance indicators, as outlined in the National Compliance Plan, to measure the effectiveness and efficiency of the tax system.November 30, 2015Met29. Government to implement Phase 2 of the RAiS (GENTAX) integrated tax software package, for all major tax types. December 31, 2015Met30. Increase the capacity of the Post-Clearance Audit (PCA) unit in the JCA through the hiring of 15 more auditors.March 31, 2016MetFinancial sector31. Government to table legislative changes regarding unlawful financial operations, consistent with Fund TA advice provided in July 2010.March 31, 2014Met32. Government to submit proposals for a distinct treatment for retail repo client interests in the legal and regulatory framework to the relevant financial industry for consultation (MEFP March 2014 Paragraph 25) in consultation with Fund staff.March 31, 2014Met33. Government to establish a distinct treatment for retail repo client interests in the legal and regulatory framework (June 2014 MEFP Paragraph 29) in consultation with Fund staff.December 30, 2014Met34. Government to table the Omnibus Banking Law 3/ consistent with Fund Staff advice to facilitate effective supervision of the financial sector.March 31, 2014Met 4/35. Government to finalize the transition of retail repos to the trust-based framework.August 30, 2015Met36. Government to fully implement the Banking Services Act.September 30, 2015Met37. The BOJ to have overall responsibility for financial stability. November 1, 2015Met38. Draft a consultation paper for the resolution framework for the entire financial sector, including proposals on (i) the scope, roles and responsibilities, and powers of institutions that would be covered by the resolution regime; and (ii) the legal structure of the regime (i.e., administrative, court-based, or a combination).October 31, 2016ProposedGrowth enhancing structural reforms39. Government to implement a new (AMANDA) tracking system to track approval of contruction permits across all parish councils.December 30, 2014Met40. Government to table in parliament the Electricity Act.January 31, 2015Met1/ The review was reportedly completed in March 2015.3/ Currently referred to as the Banking Services Act.4/ The law was tabled in March 2014 with subsequent fine-tuning in collaboration with Fund staff prior to its adoption in June. Table 2. Jamaica: Structural Program Conditionality (Concluded) 2/ While all other elements of the benchmarks were met, technical difficulties prevented the achievement of 95 percent take-up rate of e-filing in the LTO. The take-up rate was 80 percent.
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Attachment II. Technical Memorandum of Understanding
1. This Technical Memorandum of Understanding (TMU) sets out the understandings
between the Jamaican authorities and the IMF regarding the definitions of quantitative
performance criteria and indicative targets for the programme supported by the extended
arrangement under the EFF. It also describes the methods to be used in assessing the programme
performance and the information requirements to ensure adequate monitoring of the targets. In
addition, the TMU specifies the requirements under the continuous structural benchmark
concerning discretionary tax waivers.
2. For programme purposes, all foreign currency-related assets, liabilities and flows will
be evaluated at “programme exchange rates” as defined below, with the exception of items
affecting government fiscal balances, which will be measured at current exchange rates. The
updated programme exchange rates are those that prevailed on December 31, 2014. Accordingly,
the exchange rates for the purposes of the programme are show in Table 1.
I. QUANTITATIVE PERFORMANCE CRITERIA: DEFINITION OF VARIABLES
3. Definitions: The central government for the purposes of the programme consists of the set
of institutions currently covered under the state budget. The central government includes public
bodies that are financed through the Consolidated Fund.
4. The fiscal year starts on April 1 in each calendar year and ends on March 31 of the
following year.
A. Cumulative Floor of the Central Government Primary Balance
5. Definitions: The primary balance of the central government is defined as total revenues
minus primary expenditure and covers non-interest government activities as specified in the budget.
6. Revenues are recorded when the funds are transferred to a government revenue
account. Revenues will also include grants. Capital revenues will not include any revenues from
asset sales proceeding from divestment operations. Central government primary expenditure is
recorded on a cash basis and includes compensation payments, other recurrent expenditures and
capital spending. Government-funded PPPs will be treated as traditional public procurements—the
associated costs will be recorded as on-budget investment during the construction phase of the
project. Primary expenditure also includes transfers to other public bodies which are not self-
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Jamaican dollar to the US dollar114.66Jamaican dollar to the SDR166.12Jamaican dollar to the euro139.21Jamaican dollar to the Canadian dollar97.69Jamaican dollar to the British pound177.681/ Average daily selling rates at the end of December 2014Table 1. Program Exchange Rates (End-December, 2014)/1
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financed. Costs associated with divestment operations or liquidation of public entities, such as
cancellation of existing contracts or severance payments to workers will be allocated to current and
capital expenditures, accordingly.
7. All primary expenditures directly settled with bonds or any other form of non-cash
liability will be recorded as spending above-the-line, financed with debt issuance and will
therefore affect the primary balance.
8. To kick-start economic growth, the following growth-enhancing projects will be added
to primary expenditures, accommodated by the 0.5 percent of GDP reduction in the central
government primary surplus target for FY2016/17: Rural Economic Development Initiatives
(REDI), Rehabilitation of Irrigation Infrastructure (NIC), Islandwide Flood Damage Mitigation &
Vector Control, Road Rehabilitation Project II, Major Infrastructure Development Programme (MIDP),
Support to SMEs Sector, Support to PIMC Pipeline Projects, Contingency for Natural
Disaster/Infrastructural Rehabilitation, BPO Expansion – Portmore and Montego Bay, Fiscal
Administration Modernization Programme (FAMP), Strategic Public Sector Transformation Project,
Jamaica Foundations for Competitiveness & Growth, Expansion/upgrading of educational
Institutions Infrastructure, Education System Transformation Programme, Major Rural Farm Roads
Rehabilitation, Drought Mitigation Programme in Farming Communities.
9. Reporting: Data will be provided to the Fund with a lag of no more than four weeks after
the test date.
B. Cumulative Floor on Overall Balance of the Public Sector
10. Definitions: The public sector consists of the central government and public bodies. Public
bodies are institutional units that are themselves government units or are controlled, directly or
indirectly, by one or more government units. Whether an institution belongs to the public or private
sector is determined according to who controls the unit, as specified in the government Financial
Statistics (GFS) Manual 2001––Coverage and Sectorization of the Public Sector. For the purposes of
the programme, the assessment of whether an entity belongs to the public or the private sector will
be based on the guidance provided by the GFS criteria.
11. Public bodies consist of all self-financed public bodies, including the 17 “Selected
Public Bodies” and “Other Public Bodies.” The 17 “Selected Public Bodies” include: Airport
Authority of Jamaica (AAJ); Human Employment and Resource Training Trust (HEART); Jamaica
Mortgage Bank (JMB); Housing Agency of Jamaica (HAJ); National Housing Trust (NHT); National
Insurance Fund (NIF); Development Bank of Jamaica (DBJ); National Water Commission (NWC);
Petrojam; Petroleum Corporation of Jamaica (PCJ); Ports Authority of Jamaica (PAJ); Urban
Development Corporation (UDC); Jamaica Urban Transit Company Ltd. (JUTC); Caymanas Track Ltd.
(CTL); National Road Operating and Constructing Company Ltd. (NROCC); Petro-Ethanol; Clarendon
Aluminum Production (CAP);. “Other Public Bodies” include: Road Maintenance Fund; Jamaica
Bauxite Mining Ltd.; Jamaica Bauxite Institute; Petroleum Company of Jamaica Ltd. (Petcom); Wigton
Windfarm Ltd.; Broadcasting Commission of Jamaica; The Office of Utilities Regulation; The Office of
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the Registrar of Companies, Runaway Bay Water Company, Jamaica National Agency for
Accreditation, Spectrum Management Authority; Sports Development Foundation; Bureau of
Standards Jamaica; Factories Corporation of Jamaica Ltd.; Kingston Freezone Company Ltd.; Micro
Investment Development Agency Ltd.; Montego Bay Freezone Company Ltd.; Postal Corporation of
Jamaica Ltd.; Self Start Fund; Betting Gaming and Lotteries Commission; Culture, Health, Arts, Sports
and Education Fund; Financial Services Commission; Jamaica Deposit Insurance Corporation, Jamaica
Racing Commission, National Export-Import Bank of Jamaica Ltd.; PetroCaribe Development Fund;
Tourism Enhancement Fund, The Public Accountancy Board; Students’ Loan Bureau; National Health
Fund; Cocoa Industry Board; Coffee Industry Board; Sugar Industry Authority; Overseas Examination
Commission; Aeronautical Telecommunications Ltd.; Jamaica Civil Aviation Authority; Jamaica
Ultimate Tire Company Ltd.; Jamaica Railway Corporation Ltd.; The Firearm Licensing Authority; Ports
Management Security Corps Ltd.; Transport Authority.
12. The overall balance of public bodies will be calculated from the Statement A’s
provided by the Public Enterprises Division of the Ministry of Finance and the Planning
(MoFP) for each of the selected public bodies and the group of the other public bodies as
defined above. The definition of overall balance used is operational balance, plus capital account
net of revenues (investment returns, minus capital expenditure, plus change in inventories), minus
dividends and corporate taxes transferred to government, plus net other transfers from government.
For the particular case of the National Housing Trust and the House Agency of Jamaica, capital
account revenues will not be netted out since they do not refer to flows arising from assets sales but
rather to contribution revenue and therefore will be included among recurrent revenue such as is
done for pension funds. The definitions of “Selected Public Bodies” and “Other Public Bodies” will be
adjusted as the process of public bodies’ rationalization, including divestments and mergers,
advances. However, this process will not affect the performance criterion unless specifically stated.
All newly created entities, including from the merging of existing entities, will be incorporated in
either of these two groups.
13. The overall balance of the public sector is calculated as the sum of central government
overall balance and the overall balance of the public bodies.
14. Reporting: Data will be provided to the Fund with a lag of no more than 6 weeks after the
test date.
15. Adjuster: The floor for the overall public sector balance (cumulative since the beginning of
the fiscal year) will be adjusted downward (upward) by an amount equivalent to the shortfall (excess)
of PetroJam’s overall balance (relative to baseline projections in Table 2), with the value of the
adjustment at the end of any quarter capped at J$3.5 billion.
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C. Ceiling on the Change in the Stock of Central Government Direct Debt
16. Definitions: Central government direct debt includes all domestic and external bonds and
any other form of central government debt, such as supplier loans. It excludes IMF debt. It includes
loan disbursements from the PetroCaribe Development Fund to finance central government
operations. The target will be set in Jamaican dollars with foreign currency debt converted using the
programme exchange rate. The change in the stock of debt will be measured “below the line” as all
debt issuance minus repayments on all central government debt.
17. For the purposes of computing the debt target, debt inflows are to be recorded at the
moment the funds are credited to any central government account.
18. Reporting: Data will be provided to the Fund with a lag of no more than four weeks after
the test date.
19. Adjusters: The target will be adjusted upwards if explicit government guarantees (defined as
the stock of existing guarantees as of end March 2012 plus new guarantees allowed to be issued
under the programme) are called. The target will be adjusted downwards if net divestment revenues
(i.e. net of divestment expenses) take place. The debt target will be adjusted for cross-currency
parity changes; and pre-financing, as reflected by the increase in central government deposits.
D. Ceiling on Net Increase in Central Government Guaranteed Debt
20. Definitions: Net increase in central government guaranteed debt is calculated as issuance
minus repayments of central government guaranteed debt, in billions of Jamaican dollars, including
domestic and external bonds, loans and all other types of debt. Foreign currency debt will be
converted to Jamaican dollars at the programme exchange rate. Central government guaranteed
debt does not cover loans to public entities from the PetroCaribe Development Fund. The
cumulative targets are computed as the difference between the stock of government guaranteed
debt as of end-March of each year and the stock of government guaranteed debt as of the target
date.
21. The cumulative net increase in central government guaranteed debt will be monitored
on a continuous basis.
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Table 2. Overall Balance of Petrojam (Baseline Projection)In billions of Jamaican dollarsEnd-March 2016-2.2End-June 20160.0End-September 20160.0End-December 2016-0.5End-March 2017-1.5
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22. Reporting: Data will be provided to the Fund with a lag of no more than four weeks after
the test date.
23. Adjuster: In the case where the central government debt guarantees are called, the stock of
central government guaranteed debt will be adjusted downwards in both the end-March of each
year and the target date in order to preserve the performance criteria.
E. Ceiling on Central Government Accumulation of Domestic Arrears
24. Definition: Domestic arrears are defined as payments to residents determined by
contractual obligations that remain unpaid 90 days after the due date. Under this definition, the due
date refers to the date in which domestic debt payments are due according to the relevant
contractual agreement, taking into account any contractual grace periods. Central government
domestic arrears include arrears on domestic central government direct debt, including to suppliers
and all recurrent and capital expenditure commitments. This accumulation is measured as the
change in the stock of domestic arrears relative to the stock at end-March 2015, which stood at
J$21.3 billion.
25. The ceiling on central government accumulation of domestic arrears will be monitored
on a continuous basis.
26. Reporting: Data will be provided to the Fund with a lag of no more than four weeks after
the test date.
F. Non-Accumulation of External Debt Payments Arrears
27. Definitions: Consolidated government includes the central government and the public
bodies, as defined in sections A and B, respectively.
28. Definitions: External debt is determined according to the residency criterion.
29. Definitions: The term “debt”1 will be understood to mean a current, i.e., not contingent,
liability, created under a contractual arrangement through the provision of value in the form of
assets (including currency) or services and which requires the obligor to make one or more
payments in the form of assets (including currency) or services, at some future point(s) in time; these
payments will discharge the principal and/or interest liabilities incurred under the contract. Debts
can take a number of forms, the primary ones being as follows:
i.
Loans, i.e., advances of money to the obligor by the lender made on the basis of an
undertaking that the obligor will repay the funds in the future (including deposits, bonds,
debentures, commercial loans and buyers’ credits) and temporary exchanges of assets that are
equivalent to fully collateralized loans under which the obligor is required to repay the funds
1 As defined in Guidelines on Public Debt Conditionality in Fund Arrangements, Decision No. 15688-(14/107)..
INTERNATIONAL MONETARY FUND
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JAMAICA
and usually pay interest, by repurchasing the collateral from the buyer in the future (such as
repurchase agreements and official swap arrangements);
ii.
Suppliers’ credits, i.e., contracts where the supplier permits the obligor to defer payments
until sometime after the date on which the goods are delivered or services are provided; and
iii.
Leases, i.e., arrangements under which property is provided which the lessee has the right
to use for one or more specified period(s) of time that are usually shorter than the total
expected service life of the property. For the purpose of the programme, the debt is the present
value (at the inception of the lease) of all lease payments expected to be made during the
period of the agreement excluding those payments that cover the operation, repair or
maintenance of the property.
30. Definitions: Under the definition of debt set out above, arrears, penalties and judicially
awarded damages arising from the failure to make payment under a contractual obligation that
constitutes debt are debt. Failure to make payment on an obligation that is not considered debt
under this definition (e.g., payment on delivery) will not give rise to debt.
31. Definitions: Under this definition of debt set out above, external payments arrears consist of
arrears of external debt obligations (principal and interest) falling due after March 31, 2015 that
have not been paid at the time due, taking into account the grace periods specified in contractual
agreements. Arrears resulting from nonpayment of debt service for which a clearance framework has
been agreed or rescheduling agreement is being sought are excluded from this definition.
32. The consolidated government and the BOJ will accumulate no external debt payment
arrears during the programme period. For the purpose of this performance criterion, an external
debt payment arrear will be defined as a payment by the consolidated government and the BOJ,
which has not been made within seven days after falling due.
33. The stock of external arrears of the consolidated government and the BOJ will be
calculated based on the schedule of external payments obligations reported by the MoFP.
Data on external arrears will be reconciled with the relevant creditors and any necessary adjustments
will be incorporated in these targets as they occur.
34. This performance criterion does not cover arrears on trade credits.
35. The performance criterion will apply on a continuous basis.
36. Reporting: The MoFP will provide the final data on the stock of external arrears of the
consolidated government and the BOJ to the Fund, with a lag of not more than two weeks after the
test date.
96
INTERNATIONAL MONETARY FUND
JAMAICA
G. Ceiling on Central Government Accumulation of Tax Refund Arrears
37. Definition: Tax refund arrears are defined as obligations on tax refunds in accordance with
tax legislation that remain unpaid 90 days after the due date. This accumulation is measured as the
change in the stock of tax refund arrears relative to the stock at end-March 2015, which stood at
J$21.7 billion.
38. The central government accumulation of tax refund arrears will be monitored on a
continuous basis.
39. Reporting: Data will be provided to the Fund with a lag of no more than four weeks after
the test date.
H. Floor on the Cumulative Change in Net International Reserves
40. Definitions: Net international reserves (NIR) of the BOJ are defined as the U.S. dollar
value of gross foreign assets of the BOJ minus gross foreign liabilities with maturity of less
than one year. Non-U.S. dollar denominated foreign assets and liabilities will be converted into U.S.
dollar at the programme exchange rates. Gross foreign assets are defined consistently with the Sixth
Edition of the Balance of Payments Manual and International Investment Position Manual (BPM6) as
readily available claims on nonresidents denominated in foreign convertible currencies. They include
the BOJ’s holdings of monetary gold, SDR holdings, foreign currency cash, foreign currency
securities, liquid balances abroad and the country’s reserve position at the Fund. Excluded from
reserve assets are any assets that are pledged, collateralized or otherwise encumbered, claims on
residents, claims in foreign exchange arising from derivatives in foreign currency vis-à-vis domestic
currency (such as futures, forwards, swaps and options), precious metals other than gold, assets in
nonconvertible currencies and illiquid assets.
41. Gross foreign liabilities of the BOJ are defined consistently with the definition of NIR
for programme purposes and include all foreign exchange liabilities to nonresidents,
including commitments to sell foreign exchange arising from derivatives (such as futures,
forwards, swaps and options) and all credit outstanding from the Fund (including credit used
for financing of the FSSF, but excluding credit transferred by the Fund into a Treasury account
to meet the government’s financing needs directly. In deriving NIR, credit outstanding from the
Fund is subtracted from foreign assets of the BOJ regardless of its maturity.
42. Reporting: Data will be provided by the BOJ to the Fund with a lag of no more than five
days passed the test date.
43. Adjusters: NIR targets will be adjusted upward (downward) by the surplus (shortfall) in
programme loan disbursements from multilateral institutions (the IBRD, IDB and CDB) relative to the
baseline projection reported in Table 3. Programme loan disbursements are defined as external loan
disbursements from official creditors that are usable for the financing of the consolidated
government. NIR targets will be adjusted upward (downward) by the surplus (shortfall) in
INTERNATIONAL MONETARY FUND
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disbursements of budget support grants relative to the baseline projection reported in Table 3. NIR
targets will also be adjusted upward (downward) by the surplus (shortfall) in IMF budget support
purchases relative to the baseline projection reported in Table 3.
The NIR target will be adjusted upwards (downwards) by the amount by which, at a test date, the
cumulative changes from end-December 2014 in BOJ’s foreign exchange liabilities to residents with
a maturity of less than one year (including banks’ foreign currency deposits in BOJ) are higher
(lower) than the baseline projection for this change reported in Table 4.
I. Ceiling on the Cumulative Change in Net Domestic Assets of the Bank of
Jamaica
44. Definition: The Bank of Jamaica’s net domestic assets (NDA) are defined as the difference
between the monetary base and NIR, converted into Jamaican dollars at the programme exchange
rate. The monetary base includes currency in the hands of the non-bank public plus vault cash held
in the banking system, statutory cash reserve requirements against prescribed liabilities in Jamaica
98
INTERNATIONAL MONETARY FUND
Cumulative flows from the beginning of the fiscal year (In millions of US$)External loans from multilateral sources End-September 2015158 End-December 2015205 End-March 2016231 End-June 201628 End-September 2016152 End-December 2016223 End-March 2017325Budget support grants End-September 201521 End-December 201521 End-March 201631 End-June 20160 End-September 20160 End-December 20160 End-March 20170IMF budget support disbursements End-September 20150 End-December 20150 End-March 20160 End-June 20160 End-September 20160 End-December 20160 End-March 20170Table 3. External Program Disbursements (Baseline Projection)
JAMAICA
Dollars held by commercial banks at the Bank of Jamaica and the current account of commercial
banks comprising of credit balances held at the central bank.
45. Reporting: Data will be provided to the Fund with a lag of no more than three weeks after
the test date.
46. Adjusters: The NDA target will be adjusted downward (upward) for the surplus (shortfall) in
programme loan disbursements from multilateral institutions (the IBRD, IDB and CDB) relative to the
baseline projection reported in Table 3, converted into Jamaican dollars at the programme exchange
rate. The NDA target will be adjusted downward (upward) for the surplus (shortfall) in disbursements
of budget support grants relative to the baseline projection reported in Table 3, converted into
Jamaican dollars at the programme exchange rate. The NDA target will also be adjusted downward
(upward) for the surplus (shortfall) in IMF budget support purchases relative to the baseline projection
reported in Table 3, converted into Jamaican dollars at the programme exchange rate. The NDA
target will be adjusted downwards (upwards) by the amount by which, at a test date, the cumulative
changes from end-December 2013 in BOJ’s foreign exchange liabilities to residents with a maturity
of less than one year (including banks’ foreign currency deposits in BOJ) are higher (lower) than the
baseline projection for this change reported in Table 4, converted into Jamaican dollars at the
programme exchange rate.
II. QUANTITATIVE INDICATIVE TARGETS: DEFINITION OF VARIABLES
A. Cumulative Floor on Central Government Tax Revenues
47. Definition: Tax revenues refer to revenues from tax collection. It excludes all revenues from
asset sales, grants, bauxite levy and non-tax revenues. To gauge the impact of the tax policy reforms
and improvements in tax administration, the programme will have a floor on central government tax
revenues (indicative target). The revenue target is calculated as the cumulative flow from the
beginning to the end of the fiscal year (April 1 to March 31).
INTERNATIONAL MONETARY FUND
99
BOJ's foreign liabilities to residentsOutstanding stock End-December 2014242.0Cumulative change from end-December 2014End-September 201594.1End-December 20159.3End-March 201678.4End-June 2016238.1End-September 2016367.6End-December 2016469.3End-March 2017399.71/ Converted at the programme exchange rates.Table 4. Reserve Liabilities Items for NIR Target Purposes(In millions of US$) 1/
JAMAICA
48. Reporting: Data will be provided to the Fund with a lag of no more than four weeks after
the test date.
B. Floor on Central Government Social Spending
49. Definition: Social spending is computed as the sum of central government spending on
social protection programmes as articulated in the central government budget for a particular fiscal
year. These programmes are funded by GOJ resources only and comprise conditional cash transfers
to children 0–18 years and the elderly; youth employment programmes; the poor relief programme
for both indoor and outdoor poor; the school feeding programme; and the basic school subsidy.
50. In particular, this target comprises spending on specific capital and recurrent
programmes. On capital expenditure the following specific programmes must be included in the
target:
Youth employment programmes comprising on the job training, summer employment and
employment internship programme.
Conditional cash transfers comprising children health grant, children education grants, tertiary
level, pregnant and lactation grants, disabled adult grants, adult under 65 grants and adults over
65 grants.
Poor relief programme.
51. On recurrent expenditure, the following specific programmes must be included in the
floor on social expenditure:
School feeding programmes including operating costs;
Poor relief (both indoor and outdoor) including operating costs;
Golden Age Homes;
Children’s home, places of safety and foster care including operating cost;
Career Advancement Programme; and
National Youth Service Programme.
52. Reporting: Data will be provided to the Fund with a lag of no more than four weeks after
the test date.
III. CONDITIONALITY ON TAX WAIVER REFORM
53. Under the continuous structural benchmark regarding the application of discretionary
tax waivers, the granting of new discretionary waivers is subject to a de minimis cap’ of
J$10 million in any month.
100 INTERNATIONAL MONETARY FUND
JAMAICA
54. For the purpose of this condition, discretionary waivers are defined as: any reduction
in tax or customs duty payable, effected through the direct exercise by the Minister of
Finance of his powers under the various tax statutes; in circumstances where there is no express
provision for exemption in any statute.
55. The amounts covered under the cap would exclude tax measures related to
international treaties not yet ratified and provisions for CARICOM suspensions which are
binding international legal obligations.
IV. CONDITIONALITY ON USER-FUNDED PPPS
56. Under the continuous structural benchmark regarding the total loan value of all new
user-funded PPPs, the total value of all such loans contracted after May 1, 2013 will be
capped at 3 percent of GDP on a cumulative basis over the programme period. At end-June
2014, the total loan value of existing user-funded PPPs contracted after May 1, 2013 was zero.
57. For the purpose of this condition, the loan value of a PPP may be excluded if the
Office of the Auditor General has established that the PPP involves only minimal contingent
liabilities (by demonstrating that the project has no debt guarantee, demand or price
guarantees or termination clauses that could imply a transfer of liabilities to the government).
58. For the purpose of this condition, the applicable GDP is the projected nominal GDP for
the fiscal year published in the Fiscal Policy Paper tabled in parliament ahead of the adoption
of the budget. For FY2015/16, the projected nominal GDP used as a reference is J$1,690 billion, as
presented in Table 2G, part 2, Macroeconomic Framework, page 15.
V. INFORMATION REQUIREMENTS
59. To ensure adequate monitoring of economic variables and reforms, the authorities will
provide the following information:
Daily
Net international reserves; nominal exchange rates; interest rates on BOJ repurchase
agreements; total currency issued by the BOJ, deposits held by financial institutions at the BOJ;
required and excess reserves of the banking sector in local and foreign currency, total liquidity
assistance to banks through normal BOJ operations, including overdrafts; overnight interest
rates; GOJ bond yields.
Disbursements from the Financial System Support Fund, by institutions.
Liquidity assistance to institutions from the BOJ, by institution.
Bank of Jamaica purchases and sales of foreign currency, by transaction type (surrenders, public
sector entities facility and outright purchases or sales including interventions).
INTERNATIONAL MONETARY FUND 101
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Amounts offered, demanded and placed in Bank of Jamaica open market operations, including
rates on offer for each tenor and amounts maturing for each tenor.
Amounts offered, demanded and placed in government of Jamaica auctions and primary issues;
including minimum maximum and average bid rates.
Daily foreign currency government of Jamaica debt payments (domestic and external).
Weekly
Balance sheets of the core securities dealers (covering at least 70 percent of the market),
including indicators of liquidity (net rollovers and rollover rate for repos and a 10 day maturity
gap analysis), capital positions, details on sources of funding, including from external borrowing
on margin and clarity on the status of loans (secured vs. unsecured). Weekly reports will be
submitted within 10 days of the end of the period. Deposits in the banking system and total
currency in circulation.
Monthly
Central government operations including monthly cash flow to the end of the current fiscal year,
with a lag of no more than four weeks after the closing of each month.
Public entities’ Statement A: consolidated and by institution for the “Selected Public Bodies” and
consolidated for the “Other Public Bodies” with a lag of no more than six weeks after the closing
of each month.
Central government debt amortization and repayments, by instrument (J$-denominated and
US$-denominated bonds, treasury bills, Eurobonds, domestic loans, external commercial and
external official loans). Includes government direct, government guaranteed and total. In the
case of issuance of government guaranteed debt, include the name of the guaranteed
individual/institution. The reporting lag should not exceed four weeks after the closing of each
month.
Balances of the Consolidated Fund and main revenue accounts needed to determine the cash
position of the government.
Stock of central government expenditure arrears.
Stock of central government tax refund arrears.
Stock of central government domestic and external debt arrears and BOJ external debt arrears.
Central government spending on social protection programmes as defined for the indicative
target on social spending.
Central government debt stock by currency, as at end month, including by (i) creditor (official,
commercial domestic, commercial external; (ii) instrument (J$-denominated and US$-
denominated bonds, treasury bills, Eurobonds, domestic loans, external commercial and external
official loans); (iii) direct and guaranteed. The reporting lag should not exceed four weeks after
the closing of each month.
102 INTERNATIONAL MONETARY FUND
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The maturity structure of Government debt (domestic and external). The reporting lag should
not exceed four weeks after the closing of each month. Legal measures that affect the revenue
of the central government (tax rates, import tariffs, exemptions, etc.).
Balance sheet of the Bank of Jamaica within three weeks of month end.
A summary of monetary accounts providing detailed information on the accounts of the Bank of
Jamaica, commercial banks and the overall banking system. Including Bank of Jamaica
outstanding open market operations by currency and maturity and a detailed decomposition on
Bank of Jamaica and commercial bank net claims on the central government, selected public
bodies and other public bodies.2 This information should be received with a lag of no more than
six weeks after the closing of each month.
Profits of the Bank of Jamaica on a cash and accrual basis, including a detailed decomposition of
cash profits and profits from foreign exchange operations with a lag of no more than three
weeks from month end.
Deposits in the banking system: current accounts, savings and time deposits within six weeks
after month end. Average monthly interest rates on loans and deposits within two weeks of
month end; weighted average deposit and loan rates within six weeks after month end.
Financial statements of core securities dealers and insurance companies within six weeks of
month end.
The maturity profile of assets and liabilities of core securities dealers in buckets within six weeks
of month end.
Data on reserve liabilities items for NIR target purposes (Table 9) within three weeks after month
end.
A full set of monthly FSIs regularly calculated by the BOJ, including liquidity ratios, within eight
weeks of month end.
Monthly balance sheet data of deposit taking institutions, as reported to the BOJ, within four
weeks of month end.
Issuance of exempt distributions by financial and non-financial corporations, six weeks after
month end.
Imports and exports of goods, in US$ million within twelve weeks after month end. Tourism
indicators within four weeks after month end. Remittances’ flows within four weeks after month
end.
Consumer price inflation, including by sub-components of the CPI index within four weeks after
month end.
The balance sheet of the PetroCaribe Development Fund with a lag of no more than six weeks
after the closing of each month.
2Selected public bodies and other public bodies are defined as outlined in Section IV (B).
INTERNATIONAL MONETARY FUND 103
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Data on discretionary waivers, specifying those under the ‘de minimis’ cap, those under the
broader cap and those covered by the exceptions from these caps.
Data on tax waivers for charities and charitable giving.
Data on the total loans value of all new user-funded PPPs, specifying the PPPs identified by the
Office of the auditor General as involving only minimal contingent liabilities (including the
absence of debt guarantees, demand or price guarantees or termination clauses that could
imply a transfer of liabilities to the government).
Quarterly
Holdings of government bonds (J$-denominated and US$-denominated) by holder category.
The reporting lag should not exceed four weeks after the closing of each month (this would not
be applicable to external and non-financial institutional holdings of GOJ global bonds as this
information is not available to GOJ).
Use of the PetroCaribe Development Fund, including loan portfolio by debtor and allocation of
the liquidity funds in reserve within six weeks after month end.
The stock of public entities non-guaranteed debt.
Summary balance of payments within three months after quarter end. Revised outturn for the
preceding quarters and quarterly projections for the forthcoming year, with a lag of no more
than one month following receipt of the outturn for the quarter.
Gross domestic product growth by sector, in real and nominal terms, including revised outturn
for the preceding quarters within three months after quarter end; and projections for the next
four quarters, with a lag no more than one month following receipt of the outturn for the
quarter.
Updated set of macroeconomic assumptions and programme indicators for the preceding and
forthcoming four quarters within three months of quarter end. Main indicators to be included
are: real/nominal GDP, inflation, interest rates, exchange rates, foreign reserves (gross and net),
money (base money and M3), credit to the private sector, open market operations and public
sector financing (demand and identified financing).
BOJ’s Quarterly Financial Stability Report.
Quarterly income statement data of deposit taking institutions, as reported to the BOJ within
eight weeks of the quarter end.
Summary review of the securities dealer sector, within eight weeks of quarter end.
Summary report of the insurance sector (based on current FSC quarterly report), within eight
weeks of quarter end.
Capital adequacy and profitability ratios (against regulatory minima) for DTI’s and non-bank
financial institutions within eight weeks of quarter end.
104 INTERNATIONAL MONETARY FUND
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FSC status report detailing compliance (and any remedial measures introduced to address any
non-compliance) with the agreed guidelines for the operation of client holding accounts at the
Jam Clear@ CSD and FSC independent verification of daily reconciliations using data provided
by Jam Clear@ CSD. Reports are due within four weeks of end quarter.
Annual
Financial statements of pension funds within six months of year end.
Number of public sector workers paid by the consolidated fund by major categories.
INTERNATIONAL MONETARY FUND 105
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June 3, 2016
STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION,
ELEVENTH AND TWELFTH REVIEWS UNDER THE
EXTENDED FUND FACILITY AND REQUEST FOR
MODIFICATION OF PERFORMANCE CRITERIA—
INFORMATIONAL ANNEX
Western Hemisphere Department
Prepared By
CONTENTS
FUND RELATIONS ____________________________________________________________________ 2
RELATIONS WITH THE WORLD BANK _______________________________________________ 6
RELATIONS WITH THE INTER-AMERICAN DEVELOPMENT BANK ________________ 10
STATISTICAL ISSUES ________________________________________________________________ 14
JAMAICA
FUND RELATIONS
(As of April 30, 2016)
Membership Status: Joined: February 21, 1963, Article VIII
General Resources Account:
Quota
Fund holdings of currency
Reserve tranche position
SDR Department:
Net cumulative allocation
Holdings
Outstanding Purchases and Loans:
Extended Arrangements
Latest Financial Arrangements:
SDR Million
% Quota
382.90
829.37
100.00
216.60
27.35
7.14
SDR Million
% Allocation
261.64
179.44
100.00
68.58
SDR Million
% Quota
473.77
123.73
Date of
Amount
Approved
Amount Drawn
Type
Arrangement
Expiration Date
(SDR Million)
(SDR Million)
EFF
May 1, 2013
Apr 30, 2017
Stand-By
Feb. 4, 2010
May 3, 2012
EFF
Dec. 11, 1992
Mar. 16, 1996
Stand-By
Jun. 28, 1991
Sep. 30, 1992
615.38
820.50
109.13
43.65
473.77
541.80
77.75
43.65
2
INTERNATIONAL MONETARY FUND
JAMAICA
Projected Payments to Fund1:
(SDR Million; based on existing use of resources and present holdings of SDRs):
Principal
2016
Charges/Interest
3.76
Forthcoming
2017
11.40
5.02
2018
37.11
4.82
2019
64.80
4.36
2020
78.96
3.64
Total
3.76
16.42
41.93
69.16
82.60
Implementation of HIPC Initiative: Not Applicable
Implementation of Multilateral Debt Relief Initiative (MDRI): Not Applicable
Implementation of Post-Catastrophic Debt Relief (PCDR): Not Applicable
Exchange Rate Arrangements:
Jamaica’s de facto exchange rate regime is classified as “crawl-like”, based on a standardized
classification methodology, and de jure as floating. The external value of the Jamaican dollar has
been determined in an interbank market operated by commercial banks beginning
September 17, 1990. The Jamaican dollar has depreciated significantly since that time. At May 12,
2016 it was trading at around J$124.36 to the U.S. dollar. Jamaica has accepted the obligations of
Article VIII, Sections 2, 3, and 4, and maintains an exchange system free of restrictions on the making
of payments and transfers for current international transactions.
Last Article IV Consultation and Program Relations:
Jamaica four-year, SDR 643.70 million (235.4 percent of quota) Extended Arrangement under the EFF
was approved by the IMF Executive Board on May 1 2013, and the first ten reviews under the
program were completed on schedule. The last Article IV consultation was completed by the
Executive Board in June 2014.
A safeguards assessment of the Bank of Jamaica (BoJ) was completed in August 2013, with respect
to Jamaica's EFF. The assessment found that the bank has relatively strong safeguards in place,
particularly in the financial reporting and audit mechanisms. Annual financial statements continue to
be prepared and audited in accordance with international standards and improved Audit Committee
oversight is reflected in the development of the internal audit function. While oversight of the bank
was bolstered by the filling of Board vacancies during 2012, the assessment found a need to further
strengthen governance arrangements at the BoJ including through amendments to certain legal
provisions in the BoJ Act. Consistent with the safeguards assessment recommendations, in
December 2013 the government and the BoJ finalized a Memorandum of Understanding to clarify
the treatment of past BoJ cash losses and to formalize the policy of not distributing unrealized
1 When a member has overdue financial obligations outstanding for more than three months, the amount of
such arrears will be shown in this section.
INTERNATIONAL MONETARY FUND
3
JAMAICA
valuation gains to the government. In February 2014, the MOU was amended to recognize plans to
settle an outstanding balance relating to prior years and to formalize the policy of not distributing
unrealized profits to the government. A proposal for further strengthening BoJ governance, taking
into account the safeguard assessment recommendations, is expected to be submitted to Cabinet
by September 2016.
Technical Assistance:
Department Dates
Purpose
FAD
October 2015
October 2015
Treasury Restructuring
TADAT diagnostic assessment
September 2015 – October
Public Bodies Reform
2015
September 2015
Tax Reform and Tax Expenditures
April 2015
Public-Private Partnerships (PPPs) and Fiscal Risks
April 2015
July 2014
Workshop
Rationalizing the Government Wage Bill
Cash and Debt Management
January–February 2014
Revenue Administration
January 2014
Implementation of a Fiscal Rule
July 2013
July 2012
July 2012
Conceptual Framework for Fiscal Rule
Options for Expenditure Rationalization
Customs and Tax Administration (Risk)
LEG/MCM
December 2015
Resolution framework for banks and securities dealers
June 2015
Resolution framework for securities dealers
June 2013–August 2015
Reforming Retail Repo Business Model of Securities Dealers
August 2010–May 2014
HQ-based support for Omnibus Banking Bill
April 2011
July 2010
Financial Stability Framework
Unlawful financial institutions
February 2008
Financial sector regulatory and supervisory frameworks
MCM
February 2016
Supervisory framework for SDs and insurance companies
December 2015
October 2015
June 2015
April 2015
Designing resolution framework
Debt management, monetary and FX operations
Transition to the retail repo trust
Resolution framework for the securities sector and other
non-bank financial institutions
March 2015
National crisis management framework
February 2015
December 2014
TOR for a review of the BOJ’s readiness for IT
Reforming monetary policy operations and the operational
modalities of restarting the government bond market
4
INTERNATIONAL MONETARY FUND
JAMAICA
November 2014
Data collection templates for securities sector, system
design for trust, and operational matters.
October 2014
Contingency plans and crisis management framework
April 2014
Developing Monetary and FX Operations
January, March 2013
Banking Supervision and Regulations
April 2012
May 2011
February 2011
October 2010
August 2010
May 2010
March 2010
January 2002
April 2001
January 2016
August 2015
Liability Management
Prudential Framework for Security Dealers
Development of Debt Strategy
Debt management
Strengthening capital requirements for securities dealers
Medium-term debt management strategy framework
Strengthening capital and margin requirements
Banking supervision
Banking supervision
National accounts statistics (CARTAC)
Institutional sectoral accounts (CARTAC)
April 2015 – May 2015
Balance of payments statistics (CARTAC)
December 2014
National accounts statistics (CARTAC)
April 2014
January 2014
October 2013
Balance of payments statistics (CARTAC)
National accounts statistics (CARTAC)
Consumer/Producer Price Indices
July, September 2013
National Accounts Statistics
June 2012
October 2011
April 2011
July 2002
National Accounts Statistics
External Sector Statistics; Government Finance Statistics
SDDS Assessment
Organization of Statistics Office
September 1996
Multi-sector statistics assessment
STA
Resident Representative: The post of the resident representative was established effective June 1,
2010.
INTERNATIONAL MONETARY FUND
5
JAMAICA
RELATIONS WITH THE WORLD BANK
(As of April 30, 2016)
The World Bank Group Country Partnership Strategy (CPS) for Jamaica was discussed by the World
Bank’s Board of Executive Directors on April 29, 2014, following extensive consultations with
stakeholders. The overarching goal of the CPS is to support Jamaica in creating the conditions for
sustainable and inclusive growth over the period 2014-2017. The strategy is fully aligned with the
government’s National Development Plan ‘Vision 2030 Jamaica’ and aims to provide selective
solution oriented support in three strategic thematic areas: (i) public sector modernization;
(ii) enabling environment for private sector growth; and (iii) social and climate resilience. The
strategy has a focus private sector-led growth and increased competitiveness with the view to
unlock Jamaica’s growth potential while it continues to build on successes in social protection,
education, urban security and climate resilience. The IFC will work with the private sector and
collaborate with the Bank on the regulatory and private-public partnership issues to strengthen
Bank Group synergies in Jamaica and will place special emphasis on PPPs. The program will also
benefit from strong coordination with other development partners.
A. Projects
The Jamaica Integrated Community Development Project was approved in March 2014 for
US$42 million. The development objective is to enhance access to basic urban infrastructure and
services, and contribute towards increased community safety in selected economically vulnerable
and socially volatile inner city communities of Jamaica. The project will finance four components
over six years.
The Jamaica Foundations for Competitiveness and Growth Projects was approved in July 2014 for
US$50 million. The project will help to strengthen the business environment in Jamaica for private
sector investment. Key initiatives include (i) improving the competition-related business environment;
(ii) facilitating private investment including in strategic infrastructure assets and (iii) supporting SMEs
in high-potential supply chains to increase their capabilities.
The Strategic Public Sector Transformation Project was approved in July 2014 for US$35 million.
The project’s objective is to strengthen public resource management and support selected public
sector institutions in facilitating a more enabling environment for private sector growth.
The Youth Employment in Digital and Animation Industries Project was approved in July 2014 for
USD$20 million. The project taps into Jamaica’s creative industries as its aim is to support youth
employment in the digital and animation industries.
The Jamaica Disaster Vulnerability Reduction Project was approved in February 2016 for US$30
million. The project seeks to enhance Jamaica’s resilience to disaster and climate risk by improving
disaster preparedness and response, and reducing risk of key infrastructure failure as a result of
natural hazards.
6
INTERNATIONAL MONETARY FUND
JAMAICA
The Jamaica Social Protection Project (SPP) was approved in May 2008 for US$40 million, with an
additional financing of US$40 million approved in January 2014. Recognizing the government’s
budget constraints, the additional financing will continue to provide support to the most vulnerable
under a well performing project. The Jamaica Social Protection Project will: (i) further improve the
effectiveness of the Program of Advancement through Health and Education (PATH) in order to
foster investment by poor families in human capital accumulation; (ii) develop a structured system for
assisting working-age members of PATH eligible households seek and retain employment; (iii) enable
the formulation of a reform program for the public sector pension schemes; and (iv) develop a
holistic social protection strategy.
The Jamaica Rural Education Transformation Development Initiative (REDI) was approved in
September 2009 for US$15 million. The objective of REDI is to improve market access for rural micro
and small-scale producers of agriculture and tourism products, as well as, other service providers.
The Jamaica Early Childhood Development Project (ECD) was approved in May 2008 for
US$15 million with additional financing of US$12million approved in February 2014. The additional
financing will help to scale up activities under the ECD project while endorsing the objectives of the
ECD National Strategic Plan and enhancing the impact of a well performing project. The revised
development objectives are to: (i) improve parenting education and support programs; (ii) improve
monitoring of children’s development, the screening of household level risks, and the risk mitigation
and early intervention systems, (iii) enhance the quality of early childhood schools and care facilities;
and (iv) strengthen early childhood organizations and institutions.
The Energy Security and Efficiency Enhancement Project was approved in March 2011 for
US$15 million. The Project’s overarching objective is to support the implementation of the
Government Energy Policy, particularly the goals of enhancing Jamaica’s energy security and
efficiency by: (i) reducing energy costs; and (ii) reducing the country’s high dependence on imported
petroleum products. The project is expected to assist in improving Jamaica’s competitiveness.
IFC supported investments has a current portfolio of US$166.1 million with a focus on infrastructure,
energy and access to finance. The introduction of local currency instruments through an IFC bond
issuance will further leverage IFC resource mobilization capacity.
B. Advisory Services and Trust Funds
In addition to the aforementioned projects, the Bank also provides technical assistance and grant
funding to Jamaica. Currently, grants and trust funds under implementation approximate
US$20.2 million. Technical assistance complements investment financing in areas such as disaster
risk management, public investment management, creative industries, and investment climate.
IFC investment and advisory services continue to increase in Jamaica with investments in the
financial, telecommunications and energy sectors. Advisory services have been provided to support
the Government of Jamaica’s tax reform agenda in addition to focusing on improving the
investment climate, increasing Public-Private Partnerships and providing value chain support in the
INTERNATIONAL MONETARY FUND
7
JAMAICA
food sector. IFC’s support is expected to enhance energy competitiveness through the
diversification of the country’s energy mix, improve access to finance, especially to for the SME
sector, as well as expand the support to the agricultural sector by increasing Jamaican food exports.
MIGA currently has a net exposure of US$40.9 million and provides guarantee for an infrastructure
project. MIGA will continue to encourage private sector development and facilitate inward foreign
direct investment.
C. Economic and Sector Work
Between FY2014–FY16, the following knowledge products have been delivered to the Government of
Jamaica and have formed the analytical underpinnings of Bank operations:
Financial Sector Assessment Program Development Module - The assessment looked at
development priorities in the financial sector, including access to finance, housing finance, capital
markets, payment systems and remittances, financial literacy and consumer protection.
Recommendations included the development of a financial inclusion strategy.
Report on Observance of Standards and Codes-Accounting and Auditing – The report focused on
three primary strategic objectives: (1) Facilitate in making Jamaica's business environment more
conducive to private investment. (2) Supporting the governance agenda in Jamaica. (3) Facilitate
Regional integration on accounting and auditing matters. The review identified the strengths and
weaknesses in accounting and auditing practices that influence the quality of the country’s financial
reporting. It used International Financial Reporting Standards (IFRS) and International Standards on
Auditing (ISA) as benchmarks, and draws on international experience and good practices.
Parliamentary Oversight of Public Finances-An Institutional Review – A review of the capacity of
the Jamaica Parliament to play its role in the oversight of the public finances was conducted. The
report looked at the key weaknesses in performing oversight of functions by the two key committees
such as, the Public Accounts Committee and Public Administration and Appropriation Committee. The
report also includes recommendations for developing the oversight capacity of the Parliament.
8
INTERNATIONAL MONETARY FUND
JAMAICA
D. Financial Relations
Project Lending1 (Status as of April 2016)
(In millions of U.S. dollars)
Project
Original Amount
Total Disbursed
Undisbursed Balance
JM Early Childhood Develop Proj -- SWAP
26.90
20.70
6.20
JM Social Protection
80.00
64.40
15.60
JM Rural Economic Development Initiative
15.00
10.70
4.30
Energy Security & Efficiency Enhancement
15.00
11.20
3.80
JM - Integrated Comm. Devl. Proj.
42.00
2.40
39.60
JM Strategic Public Sect Transformation
35.00
1.50
33.50
JM Disaster Vulnerability Reduction
30.00
-
30.00
JM Foundations for Compet & Growth
50.00
7.70
42.30
JM Youth Employment in Digital and
Anima
Total
20.00
0.60
19.40
313.90
119.20
194.70
1/ Amounts may not add up to Original Principal due to changes in the SDR/US exchange rate since signing.
Total
disbursements
Disbursements and Debt Service (Fiscal Year Ending June 30)
(In millions of US dollars)
Actual
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016*
8.5
21.7
17.3
16
118.7
222
22.2
129.9
20.4
145.5
112.2
18.9
Repayments
43.4
39.7
45.8
47.9
48.4
46.7
36.2
35.8
35.6
37.2
36.3
45.9
Net
disbursements
-34.9
-17.9
-28.5
-31.9
70.3
175.3
-14
94.1
-15.1
108.1
75.9
Interest and
fees
17.5
20.5
22.4
21.6
16.6
13.2
10.9
11
11.3
9.2
8.5
*Data as of April, 2016
-26
8.4
INTERNATIONAL MONETARY FUND
9
JAMAICA
RELATIONS WITH THE INTER-AMERICAN
DEVELOPMENT BANK
(As of May 1, 2016)
Jamaica joined the Inter-American Development Bank (IDB) in 1969. Since then, the IDB has
approved 116 loans to Jamaica amounting to almost US$3 billion and 220 technical cooperation
operations totaling US$88.2 million. IDB financial assistance has supported a wide range of
infrastructural, environmental and social sector projects with a view to enhancing Jamaica’s human
resource and absorptive capacity and strengthening the foundation for private sector-led growth. In
addition, the IDB has supported reforms aimed at strengthening the institutional and regulatory
environment.
The IDB is the leading lender to Jamaica among multilateral development partners. As of March
2016, Jamaica’s outstanding debt to the IDB stood at US$1.56 billion, of which US$58.4 million were
loans to the private sector. The total represents 17% of public external debt and 46% of multilateral
debt (including the IMF).
Starting in 2004 there was a drastic reduction in the fiscal space needed to disburse existing Bank
loans. As a result part of the portfolio was cancelled and no new loans were approved between 2004
and 2008. The new administration that took office in 2007 intensified Jamaica's reform program and
emphasized a policy of expanding IFI financing for its development program.
This ushered in a new generation of Bank lending to Jamaica. The IDB approved eight new loans for a
total of US$405 million for Jamaica in 2008, including a US$200 million loan to increase private bank
lending to the real sector; a US$60 million policy based loan for improving public financial
management; US$50 million for road rehabilitation; US$30 million for education reform; a
US$30 million policy based loan for competitiveness; US$14 million for primary schools; US$11 million
for youth at risk; and US$10 million for rebuilding infrastructure damaged by floods.
This upward trend continued in January 2009 when the Bank approved two more loan operations: a
US$300 million liquidity program to protect the real sector from lost credit lines; and a
US$15 million social safety net program. In September 2009, a US$70 million loan was approved to
expand the highway network and a US$25 million for a citizen security and justice program and
US$10 million for road improvement.
The Bank provided unprecedented support to the country in 2010 as part of a broader financial
support from multilateral financial institutions in support of the Stand-By Arrangement with the IMF.
In February 2010, the Bank approved 3 policy based loans and 1 hybrid PBL/investment loan for a total
of US$215 million. The areas of intervention were the same as the previously approved PBLs (public
financial management, education and competitiveness) and a PBL focused on human capital
protection. During the second half of the year the Bank approved an investment loan to support
10
INTERNATIONAL MONETARY FUND
JAMAICA
competitiveness in the agricultural sector US$15.0 million, as well as two phases of a new policy based
program totaling US$400 million aimed to support fiscal consolidation.
Because of the macroeconomic deterioration following the stalling of the SBA in 2011, IDB support to
Jamaica decreased. The Bank disbursed US$131 million in 2011 and US$69.6 million in 2012. Because
of the stabilization of the economy and in support of the Extended Fund Facility with the IMF, the
Bank’s support increased in 2013 with disbursements totaling US$101 million. Disbursements totaled
US$194 million and US$203 million in 2014 and 2015 respectively.
In 2013, the Bank disbursed US$101.4 million, including US$60 million in budget support in the area
of public financial and performance management. Another US$295 million in budget support was
approved in calendar years 2014 and 2015, supporting the areas of competitiveness, education and
fiscal reform. During 2013 to 2015, four investment loans were approved totaling US$105 million to
support public sector efficiency, citizen security, climate change and social protection. In addition,
one operation is programmed for approval in calendar year 2016 totaling US$15 million, which will
support the Government of Jamaica in continuing Energy Efficiency and Energy Conservation efforts
through the retrofitting of government facilities with energy efficient equipment and infrastructure.
This operation could also benefit from JICA co-financing support in the amount of US$15 million.
As of May 1, 2016, the Bank’s portfolio consisted of 9 active investment loans1 valued at
US$348.0 million, another 6 investment loans valued at US$100.6 million are exiting the portfolio in
2016 and there are 27 non-reimbursable technical cooperation valued at US$57.7 million. Forty-six
percent of the IDB loan resources and twenty-seven percent of the TC funds have been disbursed,
leaving US$228.2 million available for disbursement.
Project Category
Number Amount (US$ mn.) 1/
Percent Disbursed
Major Ongoing Projects
Projects in execution
Private sector loans (NSG)
IIC loans
TCs in execution
1/ Approved amount.
9
0
0
27
348.0
0
0
57.7
46.0
0.0
0
27.0
Disbursements reached a low point of US$12.5 million in 2005, but have rebounded ever since. They
doubled to US$25 million in 2006, and reached US$34 million in 2007. Due in large part to policy-
based lending in 2008 and the approval of the liquidity program in 2009, total disbursements rose
dramatically to US$144.2 million, and US$151.5 million in those years respectively. The figures for
1 Including private sector loan but excluding IIC
INTERNATIONAL MONETARY FUND
11
JAMAICA
2010 reflect the above mentioned unprecedented support that implied a positive cash flow of more
than US$626.0 million. As such, disbursements leveled somewhat in 2011 to US$131.4 million, 2012
to US$52.3 million and 2013 to US$101.4 million.
Net Flow of IDB Convertible Currencies
(In millions of U.S. dollars)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015 2016 p/
a. Loan
disbursements
(including PBLs)
12.8
25.9
34.3
144.2
151.5
626.4
131.4
69.6
101.4
194.0
203.15 232.1
51.2
64.1
83.5
73.8
74.0
69.6
58.3
98.8
98.7
59.03
63.4
96.9
-38.4
-38.2
-49.2
70.4
77.5
556.8
73.1
-29.2
2.7
134.97 139.75 135.2
29.8
28.0
27.1
24.0
29.7
23.7
28.6
28.0
26.4
26.8
26.2
35.2
-73.6
-70.6
-78.1
46.4
47.8
533.1 44.5
-57.2
-23.7
108.17 113.55
195.2
b. Repayments
(principal)
c. Net loan flow
(a–b)
d.
Interest and
charges
e. Net cash flow
(c–d)
p/ Projected
Country Strategy with Jamaica
The current Country Strategy focuses on supporting efforts to reestablish fiscal sustainability,
maintain social stability, and promote private-sector led growth. This will be realized through
lending and technical assistance in the following priority areas: (i) Fiscal Sustainability; (ii) Social
Protection and Safety; and (iii) Financial Sector & Business Climate. To mitigate fiscal and social
impacts posed by extreme climatic events, Disaster Risk Management and Climate Change
Adaptation will be a cross-cutting theme.
Country Systems
In keeping with the agenda to improve and use national systems the Government of Jamaica, with
the support of multilateral institutions and bilateral donors has prepared a wide range of studies in
different areas, including a joint World Bank and IDB, Country Financial Accountability Assessment
and Country Procurement Assessment Report (CFAA/CPAR) in 2005, and a Public Expenditure and
Financial Accountability Report (PEFA) in May 2007. Following the recommended actions of those
reports, the IDB and the Government agreed on the main areas of the local fiduciary systems for
financial control and procurement procedures that needed to be strengthened, and the IDB went on
to provide resources to finance development and reform activities stemming from the CFAA/CPAR,
with non-reimbursable technical cooperation funds. Furthermore, in order to ascertain progress
12
INTERNATIONAL MONETARY FUND
JAMAICA
made in recent years and to determine eligibility to audit IDB-funded projects a follow-up
assessment of the Office of the Auditor General of Jamaica was undertaken during a mission fielded
in the third quarter of 2010.
Since 2007, Jamaica has developed a comprehensive handbook, more concrete regulations defining
its public procurement including a procedure for managing contractual disputes, enhanced
accessibility of information, separation of the Office of Contractor General and the National
Contracts Committee, as well as creating national standard bidding documents. Although the
national procurement system conforms to established principles of procurement based on
international standards, some outstanding issues remain to be resolved. With the agreement of the
Government of Jamaica, the IDB would undertake an update of the latest country assessment of the
national procurement system to identify (a) the improvements in the pertinent aspects of the
country procurement system, and (b) the readiness to rely on Jamaica’s national procurement
systems for Bank-financed projects with a view to adoption of procurement country systems. Ideally,
this work can be accomplished together with the World Bank. In addition, the IDB PRODEV facility
and the PFPM Programmatic PBL will also support the introduction of performance-based budgets
and accrual accounting. The Multi-lateral Investment Fund (MIF) will also promote better access by
Small and Medium Enterprises (SMEs) to public procurement.
Total Projected Debt Service, 2011–2016
(Millions of U.S. dollars equivalent)
2011
2012
2013
2014
2015
2016
Principal
Interest
Total
58.3
28.6
98.8
29.3
98.7
25.3
59.03
63.4
96.9
26.8
26.2
35.2
86.9
128.1
124.1
85.83
89.6
132.1
INTERNATIONAL MONETARY FUND
13
JAMAICA
STATISTICAL ISSUES
As of May 16, 2016
I. Assessment of Data Adequacy for Surveillance
General: Data provision has some shortcomings, but is broadly adequate for surveillance. In early
2003, Jamaica started participating in the Fund’s General Data Dissemination System (GDDS),
which provides participants with a framework for the development of the statistical system.
Key websites for statistics on Jamaica:
Bank of Jamaica:
Ministry of Finance and Planning:
Planning Institute of Jamaica:
http://www.boj.org.jm/
http://www.mof.gov.jm/
http://www.pioj.gov.jm/
Statistical Institute of Jamaica:
http://www.statinja.com/
National Accounts: The Statistical Institute of Jamaica (STATIN) provides quarterly and annual
data on GDP by type of economic activity and annual data by expenditure and income (both in
current and constant prices). GDP by expenditure and income was first published in 2014. STATIN
is currently working on quarterly demand-side GDP data and expects to disseminate the data in
2017. Progress has been made including through updating the base year for the national
accounts data in constant price terms from 2003 to 2007, but weaknesses remain, including dated
surveys for household expenditure (2004/5). A new household expenditure survey is expected to
start in 2017. Addressing the shortcomings in national accounts has been hindered by a lack of
resources. Assistance on national accounts methodology has been provided by Statistics Canada,
STA, and CARTAC.
Price statistics: Jamaica (with assistance from the IMF Caribbean Regional Technical Assistance
Center, CARTAC) revised its consumer price index (CPI) series in 2007. The CPI revision updated
expenditure weights of the CPI that had dated from 1984. The new CPI weights are based on a
household survey conducted in 2004–05. In addition, the STATIN compiles and disseminates the
producer price index (PPI) on a monthly basis covering mining and manufacturing industries (base
2005 =100). There are plans to improve the scope of the PPI by covering other industries like
agriculture, electricity, gas, services, etc.
Government finance statistics: Budgetary central government operations and public debt data
(with the exception of non-guaranteed debt by public entities) are updated on a monthly basis.
The demand side of GDP is not available at high frequency, making it difficult to assess the fiscal
policy stance. Also, data on operations of public entities outside the consolidated fund (which
includes all public bodies that are fully financed through the state budget) are only available with
14
INTERNATIONAL MONETARY FUND
JAMAICA
lag of more than a month, making the assessment of the overall balance of the public sector
challenging.
Government finance statistics are available at:
Debt: http://www.mof.gov.jm/dmu/
Budget: http://www.mof.gov.jm/programmes/em/fpmu/default.shtml
Monetary and financial statistics: Monetary statistics published by the Bank of Jamaica (BOJ) are
sectorized, classified, and valued in accordance with international standards, and are provided to
the Fund for the most part in a timely manner. The BOJ initiated the submission of monetary and
financial statistics based on standardized report forms in March 2007. Financial sector statistics
outside of the banking system have improved substantially, but some gaps remain.
Balance of Payments: The BOJ reports quarterly balance of payments (BOP) and international
investment position (IIP) in the format of the sixth edition of the Balance of Payments and
International Investment Position Manual (BPM6), and monthly International Reserves and Foreign
Currency Liquidity data to STA. In addition, the BOJ participates in the World Bank’s Quarterly
External Debt Statistics (QEDS) database with data on Gross External Debt Position. The quality
and dissemination of external sector statistics has significantly improved; however, there are
shortcomings for direct investment data and the coverage of nonfinancial sector needs to be
further improved. External debt data does not include intercompany debt.
II. Data Standards and Quality
Participant in the General Data Dissemination
No data ROSC is available.
System (GDDS) since February 28, 2003.
III. Reporting to STA (Optional)
No data on industrial production, wholesale or producer prices, import volumes, or export and
import prices have been reported for publication in the International Financial Statistics (IFS) in
recent years.
Detailed annual balance of payments and international investment position (IIP) data are reported
by the BOJ for publication in the Balance of Payments Statistics Yearbook (BOPSY) and the IFS. In
September 2007, Jamaica reported for the first time IIP data to STA; annual IIP data since 2005 are
now available in BOPSY and IFS. Currently, information on deposit money banks and monetary
authorities is being reported on a regular basis.
INTERNATIONAL MONETARY FUND
15
JAMAICA
Jamaica: Table of Common Indicators Required for Surveillance
(As of May 30, 2016)
Date of
Date
Frequency
Frequency
Frequency
latest
received
observation
of
Data6
of
Reporting6
of
Publication6
D
M
M
M
M
M
D
M
M
D
M
M
M
M
M
D
M
M
D
M
M
M
M
M
D
M
M
Exchange Rates
International Reserve Assets and Reserve
Liabilities of the Monetary Authorities1
05/16
05/16
03/16
05/16
Reserve/Base Money
03/16
05/16
Broad Money
03/16
05/16
Central Bank Balance Sheet
04/16
05/16
Consolidated Balance Sheet of the
03/16
05/14
Banking System
Interest Rates2
05/16
05/16
Consumer Price Index
03/16
04/16
03/16
05/16
Revenue, Expenditure, Balance and
Composition of Financing3–Selected
Public Bodies4
Revenue, Expenditure, Balance and
Composition of Financing3–Central
Government
03/16
05/16
M
M
M
Stocks of Central Government and
Central Government-Guaranteed Debt5
03/16
05/16
External Current Account Balance
2015/16Q3
05/16
Exports and Imports of Goods and
2015/16Q3
05/16
Services
GDP/GNP
Gross External Debt
2015Q4
04/16
03/16
05/16
International Investment Position
2015Q4
05/16
M
Q
Q
Q
M
Q
M
Q
Q
Q
M
Q
M
Q
Q
Q
M
Q
1 Includes reserve assets pledged or otherwise encumbered, as well as net derivative positions.
2 Both market-based and officially-determined, including discount rates, money market rates, rates on treasury
bills, notes and bonds.
3 Foreign, domestic bank, and domestic nonbank financing.
4 Selected public bodies are self-financed public entities.
5 Including currency and maturity composition.
6 Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A), Irregular (I); Not Available (NA).
16
INTERNATIONAL MONETARY FUND
Statement by James Allison Haley, Executive Director for Jamaica,
Michael McGrath, Alternate Executive Director, and Trevor Lessard, Advisor
June 17, 2016
We thank the staff for their report and their constructive engagement with our Jamaican
authorities. While the review of Jamaica’s EFF needed to be reasonably delayed to allow for free
and fair democratic elections, the process and its outcome has not changed Jamaica’s strong
track record under this program. The elections ushered the Jamaica Labour Party (JLP) into
power on a mandate that consisted of unwavering support for the Fund-supported adjustment
program and a redoubling of efforts to jumpstart private sector-led growth, which remains
disappointing. With the vitality of a new administration and a mandate to deliver strong,
sustainable, and job-rich growth, the Government of Jamaica is well positioned to continue the
reform agenda. For the eleventh and twelfth reviews all performance criteria and structural
benchmarks have been met.
Fiscal Policy and Debt Management
Our authorities remain resolute in maintaining a strong fiscal position, anchored in the
extraordinarily high primary surplus of 7 percent of GDP. While arduous, and entailing
significant opportunity cost, our authorities believe that fiscal discipline is an important anchor to
economic stability and investor confidence. A strong primary balance is also essential in order
for Jamaica to meet the Government’s commitment to bring debt-to-GDP down to 60 percent by
2026. Nevertheless, given the overall tightness of the fiscal stance, and the lack of fiscal space,
the new Government of Jamaica is placing extra attention on improving the efficiency of public
expenditures and making the tax system more growth friendly.
A key plank of the Government’s fiscal strategy is to improve the growth-friendliness of the
tax system by deliberately shifting some of the tax burden from productive inputs,
particularly labor, to indirect taxation. The 2016/17 budget represents a sizeable move in this
direction with the announcement to more than double the exemption threshold for personal
income tax from its current level of J$592,800 to J$1,500,096 in a two-step process. With the
help of Fund’s TA, the 2016/17 tax reforms will structurally improve the tax system and, in a
revenue-neutral way, encourage employment, job creation, and reduce informality in the labor
market. Our authorities wish to emphasize that this tax shift is not a one-off action, but is part of
a larger effort to improve the efficiency and growth-friendly nature of the tax system. With the
help of their international partners, including the Fund, World Bank, and IDB, the authorities
intend to systematically and responsibly overhaul the system so that it better incentivize
investment and job-creation while still providing the Government of Jamaica the revenue it
needs to provide essential public services.
2
This landmark tax policy shift will be complemented by ongoing efforts to improve debt
management, reduce the public sector wage bill to 9 percent of GDP, privatize public
entities to reap efficiency gains and lower public debt, and modernize the public sector. Our
authorities share staff’s view that unsustainable public sector wages and debt have in the past
crowded out critical public investment and eroded investor confidence. They agree that failing to
bring the public wage and debt service bills down to sustainable levels will stunt growth, and
without robust growth, social consensus for structural reforms will wane.
Generating More Robust Rates of Growth
Our authorities welcome staff’s focus on growth in this year’s Article IV consultation,
especially the inclusion of Annex II that examines growth drivers and constraints. Reducing
crime, improving the quality of services delivered by the public sector, reducing electricity costs,
and improving access to finance are all critical ingredients to growth identified by staff in their
Annex and are areas emphasized by the Minister of Finance during his presentation of the budget
to Parliament. While recognizing that some, or even most, of the benefits of these reforms will
not materialize until later in the medium-to-long term, my authorities are somewhat more
optimistic than staff that some of the dividends of structural reforms can be captured more
quickly if the government consistently implements its reform agenda and investor confidence
continues to build.
Our authorities share staff’s view that delays in implementing these reforms will negatively
affect Jamaica’s economic growth prospects, which is why they have created the new
Economic Growth Council. The Council has an ambitious goal, to raise GDP growth to 5
percent in four years, which will require a combination of structural reforms, public sector
modernization, and the implementation of several large investment projects in energy and
infrastructure. To support this work, the Council has been mandated by the Prime Minister to be
comprised of public and private sector participants, have a Secretariat to support its work, and
will be given the latitude necessary to drive important growth-oriented projects and proposals.
Monetary and Financial Sector Policy
The Bank of Jamaica continues to operate in a complicated environment, anchored in the
objective of price stability and a market-determined exchange rate. Our authorities share the
view that monetary transmission should be improved and continue to implement technical
reforms that will assist in achieving that objective. The Bank of Jamaica also stands ready to
further loosen the monetary stance if conditions warrant and if it does not threaten financial
stability or exacerbate the problem of increasing dollarization.
Our authorities are disappointed with the slow pace of the discussion on correspondent
banking relationships and call on the Fund to play a more active role within the
international financial community in resolving this issue, which now affects several dozen
3
Fund members. While weaknesses in AML/CFT have and will continue to be addressed, it is
important to stress that a strong AML/CFT regime is a necessary, but not sufficient, condition for
maintaining macro-critical correspondent banking relations. While Jamaica has been less
affected than many EMDCs by the trend in globally active banks to scale back their
correspondent banking relationships, our authorities are nevertheless aware of the magnitude of
the risk and the lack of clarity from regulators and stakeholders on what is required to maintain
this important relationship. The Fund can play an important role in advocating on behalf of its
many members around the globe that have been affected and highlight how economically costly
the loss of banking relationships can be. The Fund is uniquely placed to not only summarize the
depth of the problem, but also play a supportive role, along with other bodies and multilateral
institutions, in developing solutions. We welcome the commitments in the Managing Director’s
Work Plan to deepen our understanding of the causes, and possible solutions, to de-risking and
the thoughtful analysis that has been included in the Article IVs of some systemically important
jurisdictions. There seems widespread agreement that more work needs to be done and that the
discussion in Jamaica’s Article IV, which is narrowly confined to improving AML/CFT and
prepare for (risky and untested) interventions by the central bank, will need to be broadened if
we are to get at the root of the problem.